One generation outselling another is nothing new. Market growth, in fact, is absolutely mandatory for a market to remain alive; the moment a market stops growing, it's begun to decline. And anyway, the market growth at large is being fueled not by 360 or PS3, but by Wii. The market for games of the pre-Wii style is actually stagnating and declining.

Also, video games are inexpensive entertainment, on a comparative level.  Inexpensive entertainment rises in value during economic decline.

 stagnating? maybe you haven't seen that their sales are still going as strong as ever. take a look at the many numbers that are plastered all over this website. i really don't understand why you think the games market is crashing when the numbers say completely otherwise. stop overspeculating.

and maybe you'll argue next that wii is excempt from this generation. wake up, wii is part of this generation of game machines.

Please present some solid facts before making such bold claims , the Wii contributed to the growth of the gaming market through finding new audiences and stealing traditional ones but that doesn't neccaserily mean that tradional gamers lost intrest in blockbuster/hardcore games not at all , the HD games market i'd guess is still exepriencing growth it's just the expesnive nature of developing/promoting HD games which makes it less apparent.

On Topic : Sony is going to have to focus more on interal development of titles to avoid failling 3rd party support , they'll also have to comit to financing the development of exclusive 3rd party games for the short term.

 as far as i'm concerned, their 3rd party support is alright as long as the gamers are getting the games. exclusivity is meaningless to us gamers.

The PS2 had over 80 titles which were million sellers by its equivalent point in its lifespan as the 360 is at now, those 80 making up roughly 40% of its full lifetime of million sellers. The 360 currently has 42, and the PS3 has 15 (though it's not in its peak year yet). I'd say that's fairly decent evidence of market decline.

Sky Render, what do you think is going to happen to the market? I am interested to know, but I have taken only one economic class so far and can't predict well at all.

That depends greatly on the way the market shapes itself based on consumer actions. At the moment, the most likely course of events is that the Wii's disruptive paradigm shift (that is to say, the introduction of motion controls and a greater focus on user-friendliness) will result in the industry getting revitalized more effectively than a simple incremental upgrade (or generational shift), but in favor of these changes over hardware upgrades from previous models. Basically, the industry's values are currently shifting.

However, the immediate side-effect of this is that the previous industry (that is to say, the gaming industry as currently represented by 360 and PS3) is inevitably going to go into decline regardless of its previous state. That is, of course, one of the more infuriating parts of trying to predict how close the game industry is or was to collapse; since Nintendo disrupted the industry, we no longer have an easy way of measuring its past decline, and since the disruption is still in its early stages, we can't say for sure how truly effective the disruption is at revitalizing the industry (though evidence suggests that it is very effective indeed).

Should the shift be successful, at least for a while, we will see a different set of values prevail in the industry. Instead of "more, bigger, better" being the credo of success, "unique, user-friendly, widely appealing" will be how to get sales. This could easily switch back to the "more, bigger, better" model once the Wii has run its course, however, if there isn't another disruption to follow it up.