Who is to blame for the shutdown of Japan Studio, Team Ico? Psygnosis? Nana-On Sha? If Sony could they can maybe bring them back? Because I miss Shadow of the collosus , Colony Wars, Parappa The Rapper, Gravity Rush.

The games probably didn't make much money if any at all. I remember at some point Sony saying that a lot of their exclusives lose money but then a game like TLOU will more than make up for those losses. It was really only a matter of time until a company that size decides that while the games may be interesting and have a cult like following it's not going anywhere and just continuing to lose money for them.

Yoshida said that the system where a percentage of the profits are funnelled back into WWS budget meant that each big AAA game indirectly subsidises on average 7 other games to be made, and while most of those games do end up either breaking even or making a small profit, they leave an imprint on the library that goes beyond just raw numbers and that importance is due to the less tangible aspects like their impact on the shape of the Sony gaming library through the diversity and broader range they bring to the games library.

The shutdown is linked to a number of factors like the delay of the Last Guardian and the fact that Ueda had left and the last two years of production were done with his new studio so team Ico was already defunct a long time before the games eventual release and that meant one of the major pillars at Japan studio was gone.

Also the feeling that much of what had made Japan Studio was now rooted in the past and first party development had moved on and the hole that would be left by no longer making the kind of games and variety that Japan studio added to the PS library could be filled by utilising Japanese 3rd parties, along with the benefit of no longer having to navigate the game development issues that originated from Japan studios habit of bringing in bright new producers in the hopes that they would turn out something new and interesting, while this had some great results it also had the downside of being susceptible to meandering production where you had many ideas being thrown around but struggled to get any coherency and forward movement.

Those issues put pressure on a model where the smaller production budgets and costs allowed for profitable sales to be made on smaller volumes but that meant there was very little headroom was built in for any overspending or delays.

So these and other more general  factors like globalisation of the industry also while companies are out there to make a profit there has definitely been a shift at Sony especially under Ryan away from we can chase profit while still catering for those segments that while not the most profitable are important to our customers .

I would say the Japanese market to be honest. From all intents and purposes it has completely moved to a Mobile dominant market. If you look at the historical data for those studios, most of their sales were Japan dependent. 

Consumers.

Lack of handheld games

The only studio I think Sony could regret shutting down would be Evolution. They would've had another live service game in a genre they currently lack that could be adapted to VR. They check all sorts of boxes in terms of what Sony is trying to do currently.

This. This.

PSP was a hit in Japan and Sony could've leveraged that more for PSP and especially Vita with their first-party studios. 

Even when PlayStation was huge in Japan (PS1, PS2, PSP), that seems to be way more because of third-party games (just like globally). But that doesn't mean Sony shouldn't have tried to handle their Japanese studios better and what the Japanese consumers wanted.

While the gaming industry can be unpredictable in many ways, I don't think Sony can ever seriously challenge Nintendo in Japan again. That will be especially true if Nintendo keeps the hybrid model. 

Moving the flagship PlayStation headquarters to the USA just seemed like a natural progression with the dwindling Japanese player base for PlayStation from the PS3 onward. 

The studios themselves as being poor managed, taking a long time to release games and they being of lower quality and sales than the other studios.

Yep, even though Driveclub had delays and reception was a little subpar, it still had a good impact and sales that would justify Sony investing more on covering the shortcomings than cutting the studio.

I would also say that in hindsight if Sony knew MS would start the big purchases in near future they wouldn't have closed any of those studios (they are basically even rebuying a studio they closed on the Psygnosis case).