History Lesson Time in brief:
Nintendo dominated the 3rd and 4th Generations.
In order to develop a CD addon for the SNES, Nintendo went to Sony. The SNES-CD was developed, a standalone console, backwards compatible with SNES and able to play CD-ROM games. Due to licensing disagreements, Nintendo decided to work with Phillips, and Sony having already developed the console, called the Play Station, redubbed it the PlayStation and formed PlayStation.
With the PS1 and PS2, PlayStation dominated the industry, bringing format change, demographical change, and backwards compatibility. Gaming was made to appeal to older audiences from being children's toys. The importance of 3rd parties was magnified here, because Sony, unlike Nintendo, wasn't a Game Development company.
MS also entered with the XB and introduced online gaming which became a major component of the subsequent generation.
With the PS3, Sony's grip loosened, and Nintendo and MS consoles flourished, making cross platform and 3rd parties even more important then before. Due to the Wii's popularity among the non-gaming audiences it introduces gaming to the non-gamer audiences making it more mainstream then ever. It also popularized alternative methods of control. Online gaming became a standard.
With the current generation, the effect of the popularity of the mobile industry and gaming in that field, most of the mainstream non-gaming appeal migrated there causing an overall reduction in the expected marketsize. Digital Distribution, a phenomenon that became important at the end of the previous generation, is now a major component of this generation. The importance of 3rd parties is paramount as well. This bodes negatively for the WIi U, Nintendo's newest console, because of its declining 3rd party support. Due to the XB1 orginal price and policies, it also fell behind after launch to Sony's PS4, which for the most part has done fine so far.
Now then, with this I have come to the conclusion that the industry we have today was created by PlayStation with the PS1. In this 5th generation, everything changed, from the market demographic to the importance of 3rd parties. When Xbox entered the arena, its strategy was that of a US focused version of what PS was doing, capitalizing on the market demographic and the 3rd party influence that it had, as well as introducing Online Gaming. With the weakening of the PS brand from the PS3, this allowed Xbox to go from 20mill to 80 million. Xbox stumbled this gen when it tried to go for a market that had moved on similar to part of Nintendo's problems as a whole. Xbox can flourish in the PS industry, but its approach at aiming at the mainstream was ineffective. As for Nintendo, this problem has existed since the PS1, Nintendo which was used to prioritizing its own IPs and treating 3rd parties as subordinate developers heavily backfired, in a simlar but more exacerbated case of what occured to the PS3. Since 5th gen, Nintendo has struggled to compete in the industry with one exception, that of the Wii, because the market is fundamentally incompatible with them. Only when they address a different market entirely, such as the casual audience or handhelds, then they have succeded. Unfortunately for Nintendo, Mobile is encroching on them from both fronts.
EDIT: Argument has been updated.
The PS1 and PS2 introduced a new market that supplanted the old, one where focus on 3rd parties and broadened demographics became more important. Sure other companies did, but since this discussion is limited to how it affects the big 3 today, those companies are irrelevant. Because PlayStation changed the market for traditional home consoles, it became incompatible with Nintendo. This is mostly due that as a game developer themselves, Nintendo controlled other 3rd parties to maintain dominance. Since PS opened the doors on 3rd parties that approach has certainly backfired, and Nintendo's 3rd party support has been dwindling ever since, peaking with the GameCube. In the 4 generations, competing against PlayStation in the industry, console failings notwithstanding, the Wii was the only one that was first because it address a new market in the same way that the PS1 originally did. However, unlike the PS2, it has yet to capitalize on that market in 8th generation despite an uncontested year lead.
Since I can't describe the demographic of the Wii's marketshare, its erroneous to say that they moved on to mobile devices, but I can say that the popularity of mobile gaming may be affecting home consoles and are certainly affecting the industry as a whole, shifting focus there. but that is all I can say.
While its early, is obvious thus far that they have not solidified this market, if they can, and so trying to compete within PS market as before is obviously not going to work for Nintendo.
In this day and age, with the Internet, ignorance is a choice! And they're still choosing Ignorance! - Dr. Filthy Frank
