I agree with you. Also, look at games like RDR and franchises like AC, they are huge. And which ones have died out? For me the only question is whether any console will be able to regain the Wii's market. Apart from that, there is no doubt in my mind that the next gen will see growth compared to this one.

Now that I'm home and on a PC and not my cell phone, I can elaborate.  Look at what was cutting edge back in 1985:  Pixels that could resemble a person.  A few more frames of animation.  We couldn't imagine how "Mode 7" would possibly work.  When something like the SNES or Genesis hit the market, we were blown away by the detail.  There was "scaling and rotation".  Gaming couldn't get much better than this.....until systems started using FMV and polygons....then gaming was totally maxed out....until PS2 era graphics hit (even Nintendo reportedly said we had reached a point of diminishing returns and that graphics were good enough--I remember this quote clearly!!)....and then online gaming (which existed for several years but was finally done right--and improved upon this gen).....and HD graphics......and motion controls.  Every time we figured that gaming could not get any better, it did.  I remember people thinking that the Snes was no better than the Nes.  I remember people thinking (for example, ME--) that the Xbox 360 didn't look much better than the original Xbox.

The gaming industry always finds a way to take our expectations and blow them away.  I felt the same way about this generation back in 2005 as you felt about next geeration, right now.  I even went as far as to say I would quit gaming after the end of the Gamecube and PS2.  Fast forward a few years and I wound up buying every system on the market and buying more games this gen than any gen before it.  There were these AT&T commercials over a decade ago that talked about technology coming in the future that seemed to border on science fiction.  Things like instantly watching a movie or paying for bills online or video conferencing.  It all happened.  Look at something like Kinect--or the Virtual Boy--or the Wii Remote.  There's something out there that guys like you and I couldn't even imagine--or something that was released too early but is being perfected.  There's something that's going to make the industry thrive and survive like it always has since the NES hit the market.  After doubting in 2004-2005 (I figured no game would EVER look better than Resident Evil 4), I quit doubting. 

I'm a believer.  Let's just sit back and see what the industry has in store for us.  It'll be fun.  I promise.

I think the growth will be in developing economies such as India and China

This.

Though I disagree with what alot of the OP said about this generation, I am inclined to agree, that unless the big 3 reach out further into developing markets, this next generation may only be "as good" as this one, but not bigger. This last generation showed HUGE growth, which is due to many factors, but will/may already have plateaued. The growth potential in the west and western Europe is close to maxed out (I'm talking consoles/handhelds, I won't get started on "mobile"/Iphone games), the developers would be smart to aim for other countries, such as the 2 MrT-Tar said, that have huge populations, but relatively low console usage.

The industry can still grow. PC will continue farther digital distribution growth. Consoles wont be as expensive at launch (no 499/599 and 399 is doubtful too). Overall things will be good.

Nes Era=growth

16-bit era=Growth

32-bit era=GROWTH

PS2 era= GROWTH

Current Gen= GROWTH

Next gen=fail?

Also, writing the word "growth" so many times makes it seem like I'm spelling it wrong.  That's weird.

Nes era - growth due to virtual non-existance of home consoles after the first crash

SNES era - growth due to new(ish) major player, Sega.

32 bit era - Arguably the biggest graphical/gameplay leap introducing 3-d gaming where we previously only had 2-d.

ps2 era - Once again a new player creates growth - Xbox plus introduction of largescale online play.

Current generation - Nintendo courts the "casuals" with motion control and marketing. Growth

I'm not saying the next generation is a fail, (I actually like to wait until systems are you know, out before passing judgement), but unless there is another major leap in graphical/gameplay possibilities that we don't know about, or a new competitor, the next generation looks like it will continue where this one left off. That is certainly not a bad thing in my book, I just don't feel we will see the explosive growth in the next gen that we have been seeing in the past few. But of course, I could be wrong, and I'd certainly be happy to be wrong.

Some of you have this false impression of the video game industy growing for the past few generations but try factoring in external trends like: Population Growth, Territory expansion, Economic expansion, or the previous generations of gamers growing up to have more money to put into gaming.

In 2005, shortly before the 7th gen began, Reggie Fils-Aimé gave a more realistic picture of the video game market since the 8bit generation:

This slide says it all. U.S. Household Penetration (the white line) has been stuck at around 30%. And this only factors in population growth and duplicated ownership.

When I tried to play the video, it said "Stream not found".

Try it on youtube http://www.youtube.com/watch?v=5foJ-cwj4Mk