I already meantioned their ability to capture more of the casual crowd, and I also mentioned that there was competition from the other 2 in that market, and that it isn't historically Sony's playing field in terms of appeal.

Looking back I wonder what Sony thought when decided to use "teh cell".

The PS4 won't have to wait for cell or bluray prices to settle out, which is good. The business strategy behind the PS3 was borderline suicidal for many years.

I doubt it. I think the lower price point, a price match with Xbox 720 and platform parity between games like next-gen Madden, COD and FIFA will have it selling much better than PS3. Now I'm not expecting the PS4 to blow up the chartz, but I'm not expecting Wii U level sales either.

Look at what their devs accomplished with games like Uncharted, God of War and Killzone. Now imagine if all PS3 games were at the same level of quality.
They expected PS3 to be the lead/dominate platform. Unfortunately, competetion from Microsoft was too tough and Nintendo got really lucky with the Wii. It was an attack on both of the Playstation's markets. Casual and Hardcore. Looking back, its amazing how well the PS3 has sold and how well it has been supported despite all the mistakes Sony made.

You're welcome Sony!

What exactly do you mean by adequetely?  Take cameras for example.  Some will say that they adqeutely are replaced by cell phone cameras, although I'm sure that a hardcore photographer would differ in that opinion.

You're asking for a casual relationship, which obviously can't be provided.  But, the gaming industry last year is an example of other products hurting the gaming industry.  The gaming industry was down massively, which you keep pointing out, with both hardware and software going downhill.  This clearly means that fewer people found X-Boxs, PS3s, or Wiis under their trees.  So, did people just stop buying gifts?  DId they just keep their money in the bank?  Probably not.  They probably just spend all of that money on other products that they deemed were more worthy of those holiday dollars.  And while the gaming industy has been slumping, hotcakes have been flying off the shelves like hotcakes.  It's obviously correlation and not causation, but I think it's a pretty reasonable guess that many people are choosing to spend money on tablets instead of gaming stuff.  This does not mean that tablets are killing gaming or anything like that.  This means that at the present time, tablets present a better value to consumers than game consoles.  That situation could definitely change if game consoles provide something interesting and new, but until that happens, people will be spending their money on other things. 

Of course you can call it a hunch if you want, but the only way I can actually prove that one unrelated product harmed another would be if I actually interviewed each person who purchased an iPad about what went into that decision.  I don't have that kind of market research available, so either you agree or don't disagree.   It's one of those things that can't really be proven.

2010 saw the Kinect and Move both release (to differing levels of success), Bioshock 2, Mass Effect 2, Dead Rising 2, Donkey Kong Country Returns, Halo Reach, Kirby's Epic Yarn, Super Mario Galaxy 2, Pokemon Black and White, and Wii Party.    The big thing here is the Wii titles.  DKCR and Super Mario Galaxy were both heavy sellers, and so was Wii Party.  Kirby's Epic Yarn wasn't that big, but I love it so I put it there.  Combine the Wii's life with the Kinect and that was a bigger year.  I don't feel like going back to 2009 right now. The weak year could mean that developers are prepping things for the PS4 and 720, but that doesn't seem to be the case.  GTA V is coming out for PS3/360.  As of now, Watchdogs is supposedly a PS3/360 title.  Bioshock Infinite is going to come out for the X-Box 360 and PS3. Battlefield 4 should be a current gen thing (since the Beta will be).  Even Sony and Microsoft are releasing a lot of content for the PS3 and PS4 with Gears of War, God of War, Last of Us, and Beyond.   A slow year is not necessarily an indication of prep for new hardware.  Sometimes the stars just align that way.  In fact, I'd say the strength and amount of software coming out for the 360 and PS3 supports my point that developers are not ready to dive into the next gen.

The Wii U/PS4 hypothetical you provided again assumes that the PS4 has something compelling about it to make it worth buying.  If the Wii U continues to struggle, and the PS4 does well, then it is logical that the PS4 will see some of that sweet sweet Wii money, but that again assumes the PS4 doesn't suck.

My main argument is not about tablets.  I think that's a factor, but not the main one.  The crux of my argument is that PS4 and 720 are not going to be compelling in their early days.  Part of this is because I don't think the graphical leap is going to be as big as that between the PS2 and PS3 especially when we consider that there is no jump from SD to HD. Furthermore, I think developers are going to make their software multiplat with the 360 and 720, and that will further hold back the software.   The online interface won't be a huge leap either, so I don't see the big selling point for the next generation of consoles.

I'm NOT predicting a massive sales spike for PS3 and 360 hardware.  What I'm predicting is that people are going to simply keep what they have and not feel the need to upgrade until Sony and/or Microsoft and/or Nintendo and/or maybe even Valve shows something truly revolutionary. 

I wouldn't say that just yet. Assuming the system will release around the same time as the competition (instead of a year after), will be much easier to program for, will have a decent price point, and will have AAA Sony exclusives early in the game it could bode well for the system. Signs point to those things happening, but who knows. It's best we wait and see. If Sony manages to get its marketing up that would be a step in the right direction (they're already making moves towards that, so let's see).

By adequately, I mean being able to provide the same or sufficient experience as the previous product. A typical modern cell phone can adequately replace a camera for most people who take pictures. Can the same be said for tablets and gaming? No, especially not anywhere similar to that of a cell phone and a camera.

Consoles sales drop like this at the end of every generation. And sure, people will obviously spend that money on other things. But we shouldn't assume that those other things are the causing the drop in sales. If anything, it would be the other way around. The reason I'm asking for evidence that this stuff happens is you're claiming that it'll happen. Looking through history, it's highly improbable that products offering such unique experiences would cut into each other's sales much.

We are talking about the big games of 2012 and it's relation to earlier years for the PS3 & 360 only, in order to explain why they are slumping right now. So Wii games don't really matter. Looking only at the PS360 titles, you'll see that it wasn't much better in 2010 as in 2012, and earlier years were arguably worse than 2012.

Big games for the PS360 have been increasing steadily since the start of the generation and seems to have peaked in 2011. Why the sudden drop off during 2012? To cough it up as mere coincidence when the next gen is right around the corner is a huge stretch. And for the games you listed, those are only some of the games to be released in the next few years. We don't know how they compare to the number of next gen games, since...well, the next gen games of course aren't going to be announced until the next gen consoles have been announced. 

For Sony specifically, I think their absence during 2012 and the mystery of their second half of 2013 is more than enough reason to believe they are heavily prepping for next gen. Developers like Guerrilla Games, Sucker Punch, and Naughty Dog (Uncharted team) usually release a game every 2 years with the games being announced in the year before their release. But its February and we still know nothing of their plans. Either they will release some surprise games for the PS3 this year (which wouldn't make sense), or they are keeping silent because they are waiting for the announcement of the PS4.

But you are expecting the PS360 to be relevant enough to harm the PS4? That's still going to require some sort of massive change considering how hard they are dropping now. Looking at software sales, time spent playing the PS360 appears to be dropping rapidly. This could be the result of the entire industry slumping, which would harm the PS4 too, but that would be a different story. As for many people continuing to play the PS360 after the PS4's release, it doesn't seem likely.

As for the crux of your argument, the PS4 may not be compelling in its early days. This isn't something I can argue against as I have no idea what Sony is prepping nor do I know exactly what's "enough" graphics for consumers. Well just have to wait and see what the PS4 offers and how the market reacts. Though if I had to assume, I would say the PS4 would be in a better position than the PS4 at launch due to having a stronger first party team, superior marketing, launching on time with the Xbox, and it won't have to compete with a beast like the Wii (unless the Nextbox takes off). Other things like price and architecture should also lean in the PS4's favor, though Sony could always make the same mistake twice. Will all of this be enough for the PS4 to have a great start? I don't know, but at the moment, I think it looks much more attractive than the PS3 at launch.

Is it goot to pick up sales late in the game, when it doesn't matter?  The next Playstation system needs to do even better.

Console sales drop at the end of each generation.  People get bored with the experiences that are being offered.  It's hard for the 5th Assassin's Creed to generate the same hype as the first.  This also ties into hardware.  If people didn't buy a system for the first 7 COD games they're likely not going to buy it for the 8th.  That much is true.  But, that doesn't mean that the industry will perk right up when new hardware arrives.

As for tablets, they make the consoles a harder sell, and let's not forget cell phones.  People have budgets, and I think that if a person is spending 400 dollars a year on the newest iPad and 200 every other year on a new phone, that's going to limit their discretionary tech money.  It's not a 1:1 kind of thing but it's definitely a factor.   Not the main factor or even close, but it has an impact.

The idea that 2011 was slow beause of next gen doesn't seem to jive with the fact that a lot of big games are coming out in 2012.  Why would they intentionally hold on in 2011 and then go all in in 2012?  Based on only confirmed titles for the X-Box 360 and PS3, we're already seeing a stronger lineup than 2011.  As for Sony, again it doesn't make sense that they're having an intentionally weak 2011 just to release a bunch of major games in 2012.  If they were pulling a Nintendo and cutting off support, you wouldn't expect two huge titles in 2012.  I think that the best explanation to this is that either a) Last of Us or God of War was intented as a holiday or delayed.  Or b) Sony grossly overestimated the appeal of LBP Karting, PSASBR, Wonderbook, and Sports Champions 2.  This may seem like a big mistake for a company like this, but these are the guys who actually thought the Move would work...

Obviously though, Sony will have something for the PS4.  The bigger question is what will third parties have for the PS4?  Sony putting their full muscle behind the system's launch won't be enough without third parties pulling their weight as well, especially cause Sony's franchises aren't the most powerul out there.  I don't see strong third party support at first.  What motivation does a third party have to leave behind a 140 mil install base for a 0 install base?

The PS4 at launch will only look as enticing as its software lineup or features set, and I don't see that being exceptional.  The bottom line is that I don't think Sony will be able to convince gamers that they need a new console.  I don't see what system selling feature or software they'll have.