Well, I wouldn't say it shrunk drastically from the PS2.
PS2/Xbox/GameCube/DC combined install base - 30 million
PS3/360/Wii combined install base - 24.9 million
PS4/XBO/Wii U combined install base - 9.1 million
Even though the market shrunk in the 7th gen from 6th gen, it was still pretty healthy. It was this generation where it dropped like a rock, but even then, the PS4 is expected to at least match the PS3's install base.
But, I see what you mean by how Final Fantasy has appealed less and less to Japanese gamers and more towards Western ones.
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