This generation will shrink, I have no doubt about it. But again, it's because the Wii inflated last gen's numbers. Without it, gen 7 would already had "shrinked". I put it on quotes because, although the numbers are lower, the number of "gamers" didn't really shrink.
The handheld market is a whole different thing though. With handhelds so close to home consoles, ridiculous battery life, and sizes that require a backpack to be carried around, there's little reason to actually own a handheld. If the point was "mindless fun when I'm bored on the street", smartphones are here for that. The battery life prevents the whole "console gaming anytime, anywhere" scenario.
Handhelds will not survive, I'm sure of it. Home consoles will be perfectly fine though.
