That's not entirely true. Niche Market's don't change in size very often. For example if Dark Souls was on Wii instead of PS3, it would sell significantly worse, because it's market would come from Demon Souls which was also a PS3 exclusive.

And consideding that Devs need a lot more money from publishers, they are more under their control then ever. If Devs are targetting a smaller base, they need less money and thus publishers have less control over them. If a dev needs 1 mill to make a game as opposed to 50 mill(small by todays) standards, the publisher isn't going to make them appeal to a larger audience just to recoup 1 mill as opposed to 50 mill

I mean we only have to compare 7th gen to 5th gen to see the effects of market size on dev publisher relation ship and the diversity of games, rather then entertaining thought experiments.

I guess its all about your POV. A shrinking market doesn't have to mean less sold copies of AAA games. Who were all those people that's left gaming and what were they playing? That's the big question. We also have to ask ourselves, what kind of an industry/community do we wanna be? Gaming was a niche hobby before the 7th gen but it's not any more. The risk we are running, the console gamers, is becoming niche and obscure again. Casuals have picked up smart phones to get their gaming fix, and that goes for the kids as well. Is that a good thing? Do we really wanna be niche?

Well first of all, the entire audience of DS doesn't belong to the hardcore niche market that we think of when we think of Dark Souls. There are inevitably some percentage of users who fall outside of the "target audience" who still picked up the game and helped the game succeed, whether or not they knew what they were getting into.

Additionally, we aren't only talking about Dark Souls here. We are talking about the entire gaming ecosystem. Large games would lose out the most, with more niche games losing out to a lesser extent, however large games are often used as a source of profit to fund small games. You can't just cut out (or damage) one piece of an ecosystem and assume everything else will remain constant. (similar to my argument of how Shovelware is good for the industry)

If the market is shrinking, it's because the Wii gamers moved on to tablets/phones. Those people weren't the target of $100M budget games, so their absence won't affect anything. There may be "less games", but it's not the GTAs and Uncharted's that there will be less of; it'll be less of the Carnival Games and Zumba Fitness. I'm not sure about everyone else, but I'm fine with that.

True, niches markets don't grow, but game developing costs do.

It's not the same to develop for the PS2, a console that outputs at 480p with low textures than for the PS3 or now the PS4 where gamers want demand 1080p graphics with pretty textures and lighting and... well, the whole package. That is what is causing budgets to rise and make publishers demand games that appeal to a bigger audience.

Just look at the budgets of the games during the last gens

http://kotaku.com/how-much-does-it-cost-to-make-a-big-video-game-1501413649

With a smaller market, what will happen is that either publishers invest less in the games, opting for either less games but as big as they are now (AAAs) or as many games but with smaller budgets (so worse graphics and/or smaller worlds, maybe even shorter). Whatever the choice they make, we lose.

i'm really not sure, overall. Budgets must fall for sure to ensure success because despite the industry being bigger than ever, most people only play a handful of franchises despite the wide range available. The hardcore haven't really grown at all and because of massive budgets now it makes a big difference. So maybe it needs to shrink but i think if the industry became less western based it would be for the better of gaming.

I love playing Japanese games and it would be nice to see the industry grow in places like China, India, Africa and the Middle East (and elsewhere) to see what kind of games we get from developers in those places

This is an issue of diversity though.

As of now, the AA market doesn't even exist anymore. Only a handful of the largest games are even succeeding anymore. The resurgence of indies is obvioulsy because of the lack of diversity in the industry.

Also, niche market's aren't so generic that you could qualify it as hardcore niche market.

Armored Core is also a hardcore niche franchise made by From, and it is completely different from and appeal to a completely different crowd from Dark Souls.

The majority of those who bought Dark Souls, bought it because of Demon Souls, putting it on a different but larger marketshare platform would have drastically reduced its performance at worst, and marginally reduced it at best because the fanbase is still dedicated, but it would hardly in crease it despite the fact that you're going from 80mil to 100+ mil even if the game was good.

While in an ideal world that would be true and we (the ones on this site) would be glad, the truth is that those crappy games are the ones that give publishers the steady flow of cash that they later use to fund their biggest and longer to make franchises. So without those crappy games, there will be less than the others.

Yes a shrinking market is bad no matter how anyone spins it ... Having less customers isn't exactly a good thing.