Less of all = bad.

But smaller market size means less potential customers....if a Dark Souls game can sell 2million with a 160mil install base, how much can it sell with a 60mil install base at the same point in a generation? Install bases aren't everything, but if the market was smaller than it was, would Dark Souls have still sold as well as it did?

I agree that developers need to find ways to cut costs (Dark Souls would have been the same example I would have used of someone doing it right), but smaller market size doesn't really have much to do with that. Its all about development philosophies and business goals...

A shrinking market is fine. A lot of the 100M+ Wii buyers moved onto phone/tablet games. That is not a major problem. Those buyers were not buying a lot of AAA games anyway.

Last gen: (260M)
WII: 100M
PS3: 80M
360: 80M

This Gen estimate (220M)
WiiU: 50M
PS4: 100M
XB1 70M

That is a loss of 40M sales, buy all 3 console makers would still be fine in this scenario.

Bigger budgets aimed at smaller audiences. It can cause problems, but only if publishers and developers mis-manage products. We dont need games with 4/5 Year dev cycles and we dont need to omit platforms that are key to growth.

The resurgence of the PC gaming market along with the rise of the mobile gaming and F2P markets need to be used to full effect, otherwise we will be seeing big cuts and big closures, more-so then we saw last generation.

A shrinking market can be devastating, depending on where it shrinks. That said, when one area shrinks another tends to grow... Which is what we are seeing now with the fall of dedicated handheld gaming devices and the rise of the phone and tablet gaming scene.

2 million if those users are still part of that smaller audience.

It is bad, very bad for the traditional console market. It will mean a smaller interest from companies to even release on console, and focus more on smartphones/tablets instead.

Last generation saw probably the biggest release ever of games, from big budget AAA games to smaller, indie-developed ones. With the larger market we get more diversity and games that matches different types of gamers.

It's definitely going to be retracting, but definitely should still be above the PS2 generation.

On the same note it might not change at all. If the entire market size is 40 million and Dark's Souls niche market is 4 million gamers, it might barely increase even if the entire marketsize is 100 million. Niche markets are extremely dedicated. Even if you go from 2 million on 80 million, to 1 million of 40 million thats the same ratio, but its a loss of 1 million from a loss of 40 million.

Larger games that need more money are harmed more from shrinking market sizes, but I feel like thats a self-perpetuating problem.

As long as the PS4 and XOne are selling, I don't care.

I answered "Yes" to the poll.  More for the reason that I think that the console systems total sales will shrink. 

Last gen we saw a huge amount of people buy a Wii and then make very little investment into the platform.  They didn't purchase that many games.  We also saw those same people either buy a PS3 or a 360(or both).  So, the number of actual users were far fewer than the 260 million would suggest.  The real question is whether the market realyl grew at all.  I think last gen grew only marginally if anything.  Most users who may have bought a Wii or a PS360 and were only casual gamers seemed to replace those systems with tablets or smartphones.  They realized that for what they really need a game system for, they don't really care enough to get a console again.  Because last gen was 8 years long, we shouldn't be seeing the continued slowdown of the sales of the PS4 and XB1 this year. They should have been steadily increasing if the "real" demand was there.

So, I agree that a downsizing is inevitable.  As far as the refocus?  Probably not for a year or two, as development timelines take so long before these companies will buy into the shrinking market.