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Yes it is very bad. Game developers are companies. Companies need to make profit. If a market segment shrinks, the shareholders force a company to leave the shrinking segment. Developers that leave the business and move to Iphone / Android / PC Free to Play are lost and cannot create console games.

A shrinking market means Wii-U style 3rd party support for PS4 and X1. Less or no 3rd party games means death.