I wouldn't really say "hurt". Since the PS4 is coming out during the Holidays, itt'l probobly still sell more than expected. 

I don't think so. The demand for the next gen consoles is large enough that not everyone will even be able to get one initially and supplies will most likely be limited through the holidays.

And even IF PS3 game sales cannibalize PS4 sales its better for Sony in the end. PS4s are sold at a loss. Each PS3 sold or just the licensing revenue from the much larger install base of the PS3 will net profit for Sony. And as long as Sony can match demand for the PS4 it will benefit the PS division.

OP said "not counting third party," meant multiconsole.

There's really no difference with this scenario than there was with the PS2. God of War 2, Persona 3 Fes, Wild ARMs 5, Persona 4, Nobunaga's Ambition Rise to Power, Nobunaga's Ambition Iron Triangle, Final Fantasy 12, Dragon Ball Z Budokai Tenkaichi 3, Fire Pro Wrestling Returns, etc. There were a lot of games that I was interested in that were near the launch of t he PS3 and after. The 360 started the next gen a year before that and that's not even counting all those titles after it launched.

So yeah. Same deal. It actually helps Sony more than hurts them because it keeps people who don't own a current gen console from jumping to possibly a competitors next gen console when the person looks and sees that the PS3 is cheap, has a large library of games, and there are still new games coming out.

Unfortunately, it won't work if your new console isn't popular. Let's say the PS4 was about as popular as the Vita is, then you'd want to pull the plug on your earlier console to force developers to make games for the new console. Without a PSP there would be more games for the Vita, so while you'll lose sales in the short run, you'd gain in the long run, but too little too late. 3DS has already won this race and has overlapped Sony six times.

except PS3 launched with BC so upgrading meant you still got to play those games

The next gen won't take off as some people are expecting it. The install base will grow slowly, like always. That's why it's smart from Sony to support the old systems, those are the ones interesting for mass market. Only a few hardcore fans will buy the PS4 straight away, most people will just wait for a price cut. And because of that, the strong support for PS3 won't hurt the PS4 at all. Maybe some people buy a PS3 in 2014, they get a ton of great games and maybe in 2016 or something they are pleased enough to give the PS4 a chance.

It is easy to gain new customers. But it is next to impossible to win back disappointed customers. That's why Sony has to support the PS3 as long as there is demand for it. Just look at all the positive feedback Sony is getting lately. That's not just because of some DRM policies, it's also because of the continuing strong first party support over many years. Nintendo and Microsoft let their systems die early and fans respond accordingly.

At least that's the way I see it. The transition from PS3 to PS4 will be very smooth while the transition from the other two comes with a complete stop from where they slowly build a new install base. Sony is on the right way if you ask me. They just need to continue what they are doing. They are getting loads of positive feedback and sales will follow.

Well I got a PS3 (a few months back) only because of the awesome exclusives and because PS4 isn't backwards compatible. Otherwise I would've pre ordered a PS4 instead. Oh and the whole paid online thing. I would've paid an extra $50-$100 for the console if it had free online and backwards compatibility.

It might not, because there are games coming after launch from 3rd party and sony first party which has not announced release date yet but sony about to release 20 FIrsty party title(including indie type games) and got many 3rd party games to keep the platform interesting along with Gaikai to stream PS3 games in US.

Final Fantasy X-X2 HD? lol.

What will make PS4 different from PS3, will be the 1st party games. 3rd party games - if not all - will be released on both consoles.
So, Sony needs it`s big 1st party games to sell the PS4. That is: Gran Turismo, Uncharted, God of War and Little Big Planet. Not that Sony doesn`t have other IP that sell well. But these seem to be consistent high sellers. And none of those will arrive at least until late 2014.

The problem with Gaikai is that although you can play PS3 games, you can`t use your save files on PS4. Basically, you have to start from scratch.

Hows much does the delay of Watchdogs hurt, I imagine it will convince more than a few people to wait for next gen.