While I agree that the 8th generation will be smaller than the 7th generation, I don't fully agree with the reasons or the overall impact.

I will be shocked if the combined Wii U/One/PS4 total passes 200 million and surprised if it passes 180 million but 150 million is a tad pessimistic though.
The reason I think it will shrink is two-fold; one being that the majority of the transitional audience the Wii had has gone over to different forms of gaming and the other being a shorter hardware cycle due to increased focus on features and extras and social integration plus the ever accelerating overall technology advancement.
I also believe, again due to these factors and the added notion that the One and PS4 is even more similar than the PS3/360 ever was in almost all regards, that all the consoles will have a flatter sales curve than the ones of the 7th gen (certainly none of them will repeat the amazing straight and straight down curve of the Wii).

Will the 8th gen fail though? I suppose it depends on your defintion. Financially for the console manufacturers? Hard to say at this point, I'm leaning towards an overall yes though. Fail to expand the market; yes, without a doubt, most of the Wii's expanse was temporary and the console market as defined by core console gamers and software didn't really grow that much at all.
I'm not sure if this is anything but a semantic debate in the end, there are all sorts of failure.
For instance, as far as I'm concerned, the 8th gen is going to be a failure for me for continuing on the path set by the 7th gen in design philosophy and online/social focus since that's not my cup of tea, that hardly qualifies as an overall, objective, failure though.

Anyways, interesting subject!

Edit; OP, didn't you make a similar post a few weeks ago? This one is more thought provoking and less extreme and actually holds some merit, in my opinion. Something along the lines of "the future does not have your console in it" or something like that.

Based on the sales of the WiiU/PS4/XBox One, I think that all three are going to fail!

WiiU

The WiiU will be lucky to achieve 20-25 million sales lifetime.  Is it beause the system is bad? Yes and No.  Yes, because the unique controller increases the cost of the system and the common folk don't care about it.  Also, the advertising and messaging about WiiU has never landed that it is a SIGNIFICANT jump in quality from the original Wii.  The No part is related to the fact that it has awesome first party support(finally) that can't be rivaled for years by the other two systems.

PS4

The PS4 has had clearly the best start and the best gaming powerhouse design of all three systems.  Without much debate, the PS4 will probably outsell the WiiU and XB1 combined in the first 12-18 months.  That is the real problem with the PS4.  Past the intial rush of core gamers looking to upgrade their old PS3/360, the PS4 doesn't do much for the casual crowd.  Also, the whizbang/shock of the graphics power(compared to the last Gen) will wear off quickly, as all 3 systems are truely underpowered at launch and will only get worse.  The initial success(power/price) of the PS4 is it's actual long term failure.  What does the PS4 have that people outside the core gaming community really want?  Nothing YET...  PS4 will sell 50-60 million MAX, probably closer to 50 million.

Xbox One

The Xbox One obviously has a few problems to overcome upfront.  Microsoft failed on messaging when announcing  the console and then failed with the price too.  But did Microsoft fail on pricing?  They did if they wanted to grab casuals from the word go, but not long term.  Microsoft has planned the XB1's launch as a long term thing.  Get the early adopters at a higher cost, because they will pay.  Drop the price later as content and multiple(win8/winphone/XB1) platform delivery is realized.  It has been reported that Microsoft is planning to make the windows phone OS free to cell phone makers.  Microsoft realizes that long term, it's the ecosystem that matters and not the hardware.  It's really only a matter of time before they drop the XB1's price below cost to gain maximum platform delivery.    Even though most people don't want me to use the K word, I will say it.  The Kinect is what will actually save the XB1 long term.  The capabilities of the Kinect along with the XB1's HDMI pass through will be the systems big draw down the line.  The Kinect/Multimedia capability is what makes it have the functions that help it cross over to the casual crowd.  Unless Microsoft pulls the original Wii out of the hat and has a monster cultural craze to buy the XB1, it will probably sell the same 50-50 million as the PS4.  The difference is that the XB1 will be more succesful in years 3-6.

So, how does this indicate that the Next Gen is a failure?

Like anything, it's all in the eyes of the beholder.  Last Gen will have sold 270+ million. Based on my thoughts, this gen will sell 150 million at best. It's not because the products themselves are bad. It has a lot to do with things outside of console gaming. Smartphones/tablets/PC's/ the internet.  I could get into a long debate on how those things will really be the demise of console gamings dominance, but that is another thread...

Are you serious? You think theres 80 million of hardcore gamers on the PS3? The playstation is very casual friendly here in europe at least. People buy it for FIFA, Skyrim and stuff like that.

You underestimate the number of hardcore gamers.

Well, how many do you think there are?  What is a hard core gamer in your estimation?

If we split the hardcore gamers into 2 groups, XB1 and PS4.  Would that mean that I am suggesting that there are 60+ million of them?

200 millions