Ah, but what you're forgetting is Sequel-itis.

 With development costs rising, it gives companies like EA even MORE incentive to come out with sequels. Why? Because they don't have to re-invent the wheel development wise.

 They could add a couple extra polygons to the models, come up with new soundtrack, add a few gimmicks, update the roster-- then BAM Madden 2009. People will buy it in droves again.

 Sequels are great because developers don't need to "invent" anything new, and since the franchise is a cash cow, then they can reap the profits.

On the other side of the coin, the gaming market can get pretty stale after a while. People can only buy the same thing over and over again before they get tired of it (though sports games get somewhat of an exception).  This phenomena also occurs in the movie industry (How many American Pie and Bring it On sequels can they make? OMG)

I would like to post these two charts, even though you can get them both here at this site (though it takes a while to group it all together).

¹This is based on reports of PCE and NeoGeo... and there doesn't seem to be any good source on it, so it could be debatable.
Past generations figures based on VGChartz "Worldwide Hardware Shipments"
Current generation figures based on VGChartz, week ending 22nd Dec, 2007, using VGChartz "Hardware from Launch"

¹First year totals in each region, using VGChartz "Hardware form Launch" set to 52 weeks for each region for each console.
²America and Others numbers are based on Japans first year sales to total LT sales in that region (roughly 50%)
PS3 has only been out in Others for roughly 40 weeks, except for Hong Kong and Taiwan, where it sold roughly 13,000 units.

Obviously more is needed than simple numbers, but what interesting in the first chart is the explosion of Others during the PS era, and then the (slight) reduction of the Japanese market last generation.

Also interesting to note that without the Wii (which is not competing with the PS3 and 360), we would be very far behind last generations adoption rate. If you put in a GameCube2 numbers (which would probably be as low as 4 million), then the numbers start looking really bad. Since the PS3 hasn't been out a year in all markets, there's still some time for Others to grow enough to make the total % change zero, but Japan and America are already "lost" (4th season starting soon.. oh yeah).

That's my 2 cents (or... .15 vg cents?)

Edit: PS sales in Japan were wrong...

Since games in the game database has genre info, it would be possible to do a chart of different genres over time. That would be really interesting.

Higher hardware prices are driving a lot of the intense revenue growth we're seeing. (Software revenue alone was totally stagnant in Japan from 2006 to 2007, for example.)

Higher software prices also contribute. 360 and PS3 have higher prices than last gen, and games like Guitar Hero and Halo 3 are pushing even higher prices (and tons of sales).

On the other hand, dropping prices over the course of the generation can offset increased unit sales, and create the illusion of no growth. And I'm sure people will agree the emergence of games like Brain Age is pretty significant, even if they drive less revenue than a much smaller selling 360 game.

I don't know what's more funny. Leo-j's ignorant or getting schooled by Soriku.

 The latter.

If growth is defined by money I only say that " revenue =/= profit "

To clarify, my main arguments are thus:

1.) Anecdotal evidence is not proof.
2.) When a game becomes a big hit, many other games emerge that are similar, and inevitably they will chip away at the success of the game that started the trend.

Point 2 is what I was refferring to in regards to Street Fighter 2. A game does not have to be a mainstream success to diminish the popularity of a major franchise (the market typically becomes flooded with crap), but for the sake of argument, lets look at some popular examples. According to VGChartz' (incomplete) data, fighting franchises released since SF2 that have sold more than 1m include:

Killer Instinct
Mortal Kombat (this was the first game to really stick a knife in SF2)
Dead or Alive
Super Smash Bros (okay, that one's dubious as it's not really a fighter)

Other fighting series that have been popular enough to warrant sequels include:

King of Fighters
Battle Arena Toshinden
Marvel vs. Capcom
Capcom vs. SNK
Fatal Fury
Bushido Blade
Power Stone
Fighting Vipers
Tobal
Star Gladiator (I'm really scraping the barrel now, but my point still stands)

As to my theory about certain franchise's decreasing sales, I am not saying that there is a universal trend, as that would contradict my central argument that anecdotal evidence proves nothing. I am simply saying that in the majority of cases, franchises will experience decline within a generation. GTA and Halo buck this trend because they are massive cultural phenomenon; Dynasty Warriors has experienced severe fluctuation and therefore provides no real evidence either way. Once again: anecdotal evidence is not proof. It is worth noting, however,  that a growing install base can account for increases in sales between franchise instalments, but not a decrease.

Your argument collapses when you try to use Final Fantasy to refute my claim, but conveniently left out FF9, which sold less than previous instalments on the PS1, but also sold considerably less than FFX on the PS2. If you include FF9, it would completely validate my hypothesis!

In summary: I am not suggesting that declining franchise sales is solely intra-generational. I am not even claiming that your central hypothesis regarding the waning popularity of certain genres is wrong (in fact, in many cases I would agree). I am simply pointing out the flaws in your methodology.

The charts must be wrong ,its doubtful the PS1 sold 32 million consoles in Japan alone .