I don't necessarily think that the peak sales of the past are the benchmark for viability. I mean, to apply that standard to hardware, is PS failing because they haven't recaptured the sales of the PS2, or the PS3 + PSP? You can do well even if at some point in the past you've done better.
I mean yeah, it would be better if Playstation was more successful in Japan, but I'd have to respectfully disagree about the third party outlook in Japan being quite so gloomy.
I agree with you only because now most games are ported to PCs and are easier and less costly to be localized which allow third parties to leverage sales outside Japan. I've seen quite often third party games breaking their own records the past years of the best selling in the franchise and this is never thanks to JP market, rather despite of JP market