Increased adoption of PC gaming in the later half of its life

Just honing into the bolded because I see this repeated a lot but it actually doesn't add up. Sonys western first party titles are more popular in Japan than their Japanese ones. Moreover Playstation has never attracted large Japanese audiences with it's first party titles outside of GT and most recently Ghost of Tsushima.... Ghost, Spiderman, God of War and Horizon are much better sellers in japan than anything Japan studios released in the market. 

It's fair people miss Sonys AA output but they really didn't sell much in any market. It's simply not part of the equation in their decline, especially when you consider they went on to hold a console monopoly on many third party Japanese games.

Ironically Astrobot is bigger in US/Europe then it is in Japan, despite being the game that should cater to Japanese tastes. I think crux of Sonys failures is really just:

1. Hardware did not appeal to the japanese market, they want portables and/or novelty. This remaining market is somewhat shared now with PC it seems. 

2. The audience for traditional gaming experiences which made the PS2 a success has diminished and developers need to think outside of the box. The emphasis isn't even on Sony, it's 3rd party too. But of course with Sony not being able to rely on third party IPs anymore like Tekken, Final Fantasy, Resident Evil etc, they'd need to be taste makers as Nintendo is for their platform. But again, a big success like Astro saw Japan as one of its weakest markets.

With this in mind, it will be interesting to see what becomes of this Playstation portable and also if sony pushes any innovation with the PS6. The inclusion of a PS5 Spec portable so late into the gen, means sony is probably not expecting developers to abandon this spec of hardware for a very long time... Which means PS6 may try to innovate in ways beyond simply having a new generation of graphics. 

1. More Japanese interest in handhelds. 3DS and especially Switch ate away at some PS4 sales in Japan.
2. Increased Japanese interest in PC gaming.
3. Increased prioritization of North American and European games and preferences over Japanese interests.

The interest in handheld don't explain the decline of PS4, because handhelds sold less in that generation (DS > 3DS, PSP > Vita)

PS3 is the one that felt strong competition with handhelds, with PSP being the effective replacement to PS2 for many gamers

A decline in handhelds in one generation sales doesn't necessarily inform us on the lack of interest in dedicated home consoles, which I think is the better way of looking at it.

It's the result of Sony competing with Nintendo and being unable to win. You only need to consider how third party support has moved over the course of the past 20 years.

With the PS1 and PS2, Sony held the lion share of notably third party games that registered in the software charts. The steep rise in development costs for the PS3 did a lot of damage to Sony's home console business, but this was mitigated for the overall PS business by third parties choosing the PSP instead of the Wii. But what shouldn't be ignored during this generation is that the DS could expand on what the GBA had received. This was followed up by Nintendo being very aggressive during the next generation when the 3DS went right after the PSP market, including the most efficient third party deal that was ever made in video game history: Nintendo secured Monster Hunter exclusively for Nintendo systems for the duration of a generation. This stripped Sony's handheld business of its lifeblood, because MH was central to the PSP's extended prosperous lifespan in Japan; MH had also risen to become the biggest third party IP in the Japanese market, leaving both Dragon Quest and Final Fantasy behind it.

Sony's handheld business declined from 20 million systems sold to only 6m. At the same time, the PS4 was on pace to outsell the PS3 for a long time, but during the latter half of its lifecycle the wheels began to fall off. This coincides with the rise of Nintendo Switch which broke up a lot of exclusivity that PS previously enjoyed. By 2020 there weren't many third party IPs left that were kept off Nintendo.

A common narrative that has been used by PS fans is that Sony and Nintendo don't compete with each other because AAA third party games usually skip the Nintendo platform. But this argument doesn't hold up for the Japanese market because most AAA titles don't sell much in Japan while at the same time most third party titles below the AAA level are nowadays multiplatform and available on both PS and Nintendo. When the argument is that Sony and Nintendo don't compete when games aren't available on both platforms, then this same argument must mean that Sony and Nintendo do compete with each other when games are available on both platforms.

The PS5 is following the same path of PS's terminal decline in Japan. Here's how Sony's hardware sales look over the course of five generations:

PS1: 20m
PS2: 23m
PS3 and PSP: 31m
PS4 and PSV: 16m
PS5: 8-9m (projected figure)

The addition of a handheld lifted PS to its greatest height, but the fall has been steep with two consecutive declines of around 50% each. How will the PS6 fare when Switch 2 is making further inroads? We might be looking at lifetime sales of around 5m, because remaining holdouts like Square-Enix have already announced to go for a broader multiplatform strategy than before.

There are two other explanations that are being pitched regularly. The first one, that Japanese gamers are less interested in home console gaming, is bogus. As a hybrid console, Switch can be played just fine on TVs because it didn't surrender any home console features; the breakdown of how Switch SKUs have sold over the years also shows us that the much cheaper handheld-only Lite isn't exactly popular, finishing in third place among three SKUs. If we look at only the timeframe since Japanese gamers have a choice, so since September 2019 when the Lite launched, we have shipments of ~12m for the original Switch, ~10m for the OLED and ~7m for the Lite. The bottom line is that the portability of Switch doesn't mean that gaming on TVs has ceased to be in high demand in Japan.

The second explanation, that the PC platform has become more popular in Japan, makes sense. The same logic as for the more elaborate Sony vs. Nintendo explanation above applies here: More games have gone multiplatform than was previously the case. But this is merely a smaller piece of the overall puzzle because consoles are still way more popular than PCs in Japan.

A lot of people in this thread echoes some of the reasons:
-Western focus
-Japanese publishers going mutliplatform
-PC gaming rise
But another reason I think is the younger generation just doesn't care about Playstation like the older generation did. It's the reason companies always change strategies when they can't use the same strategy to attract a new generation to their products. I think that's why Xbox and PS are releasing games on other platforms.

Sony's Western IPs do better in Japan than their Japanese ones, cos honestly the few Japanese ones they've had in the last 20 years haven't been that strong. Don't get me wrong, I love games like Puppeteer, but they're fairly niche and not the sort of thing you'd expect to move hardware or light up the charts.

Sony have no answer to say, Nintendo's first party IPs like Splatoon or Animal Crossing that are ultra-popular with Japanese gamers.