how can anything surpass a system what needed too be replaced multiple times  (read 7 times)

 What if all 3 consoles put together outsell the last generation by a wide margin?

I see lots of problems with this. First, your dismissal of the three "anecdotal" examples of Tekken, Soul Calibur and Street Fighter seems a little odd; if you want, I can also add Virtua Fighter to this mix, and then what are we left with? What traditional fighting franchises exist outside of these 4? Guilty Gear was never a major seller to begin with, and I can't think of a single other traditional fighter that has sold over 1 million copies. If Tekken/Street Fighter/Soul Calibur were 3 examples in a sea of millions, maybe I would agree, but these are BY FAR the three biggest fish in a sea of about 50, so it's a lot more meaningful than you give it credit for.

As to your second point, you are incorrect. Lots of games and franchises see increases over the course of a generation -- Grand Theft Auto, Halo, and Dynasty Warriors are all examples from last generation. There isn't a trend to follow here. The example you've given -- Final Fantasy -- is actually an excellent example of a general downward trend of a genre, not of a particular console. VII sold much better than VIII, which sold about as much as X, which sold better than X-2, which sold better than XII. It isn't a straight line downward, but the series is clearly in decline.

Whereas, again, series and/or genres that are increasing in popularity, such as Halo 3 (which is clearly going to outsell Halo 2 despite being on a smaller installed base) and Grand Theft Auto have seen increasing sales.

If we want a quick and dirty breakdown, I see these genres notably increasing in popularity recently:

First Person Shooters
Third Personson Shooters
Massively Multiplayer Online Games
Mini Game Compilations
Self Improvement Games

I see these genres as stagnant or in decline:

Football/Basketball/"Traditional" Sports Games
Racing Simulators
Japanese RPGs
Fighting Games

I like this thread. Good job Bodhesatva. Maybe its the kitten avatar that has me intrigued.

Maybe that's what Nintendo was trying to tell us oh so many years ago. RPGs and Racing Simulators are in a decline, so it would be silly to gear the next system to have better looking RPGs and Racing simulators, since the market for those are clearly shrinking.

As for games like Madden, the sales remain the same every year, but the investment developing a next generation console continues to rise, thus the bottom line takes a hit every time a new system comes out.

 Your explanation of Madden seems valid, and really gets to the heart of what I'm talking about. It would be one thing if Madden's increasing development costs were being offset by increasing demand.

But generally, we see that X number of people want Madden. That X has been about the same for 5 years. In those 5 years, the cost of producing Madden on a yearly basis has clearly increased profoundly -- perhaps two fold. I expect that Madden is still making a VERY good profit, and will for years to come, but that doesn't change the fact that trouble lays ahead.

If a stable "X" amount of people want Madden year after year, but the game's cost, Z, keeps increasing, eventually Z will be greater than X, and increasing the graphics/complexity/technical power of Madden will no longer be worthwhile. It does not mean that people will stop buying Madden -- I expect football games will sell until the video game medium has entirely gone under -- but it does mean that at some point, we'll stop seeing significant technical improvements in the genre. At some point, improving the graphics any further results in losses, and companies have to say: "That's it, no more." 

Its obvious some sales data over the last year or so that the only games pulling in massive amounts of sales/revenue has been the casual lower production value games like Brain Age and Nintendogs.

The big budget games like MGS4, FF13, etc are going to be in a situation where their sales numbers are likely similar or lower than before but with a budget 2-5x larger than before. Do you honestly think that is a sustainable business model? There is a reason why games have been raised to $60 for 360/PS3 games, the business model is no longer sustainable for most companies.

MGS4/FF13 will no doubt make a profit but the rate of return will be pitiful compared to previous gen due to the oversized budget. Its now at the point where a single flop of a big budget game can cause small to medium sized companies to basically go out of business.

It can only be argued that its healthy if all these new games are pulling in Nintendogs numbers but they are not.

My problem with the analysis of the VG "growth" is how far the data we get are from the reality. Let me give two exemples :

First, because it doesn't include at all the second hand market which, at least in the case of the PS2, is still probably a "beast" moving a lot of money. Of course, this is not direct revenues for publishers, but when it comes to analyse the taste of the public, then we might miss something big. Is the second hand market huge on "casual" games, or "core" games ?
Because basically, around here, we still have something like 100 millions customers which haven't yet come to the "next/new gen" consoles. And what kind of players are they ?

Second, because NPD datas are also very scarce on many markets related to video games, like casual PC market (which happen to be huge and drain a lot of women way before the Wii or the DS did) or MMO RMT and various revenues system...

It's important because frontiers between PC and consoles are fading and you have to consider the market as a whole.
Some seems to think RPG are in decline, while from what I see, it's currently, and by far, the biggest genre, bigger than it has ever been. Some ppl just move from FF to WoW or Lineage & co. MMO but still RPG.

And that aspect is also interesting : how much online play do impact the market (including consoles now) ?

 You are comparing apple with orange. You should compare year-to-year hardware sales and software sales, not life time sales vs one year sales.

I believe that a large portion of how the market has changed from generation to generation actually represents the age and lifestyle changes of the first generation of gamers.

At the end of the generation between the SNES and Genesis there was a large and growing population of gamers who were older than Nintendo and Sega were targeting; although Sega tried to be "cooler" and appeal more to teens, neither the Genesis nor the SNES really tried (hard) to appeal to gamers over 15 or so. This gave Sony the opportunity to target gamers between the age of 13 and (about) 21 with the Playstation by producing a system that focused more on their interests (sports games, 'cinematic' games, and "Mature" games); the PS2 targeted a little older with its focus on multimedia capabilities but still maintained this core target.

I suspect that the Wii is so successful because it has (once again) transitioned into an older group of gamers, who grew up with videogames, have children (or at least responsibilities) and are far less worried about graphics as they are with fun.