It didn't seem like Sony wanted that crowd too badly.
Oh I'm sure Sony wanted them, they just aren't competent enough to compete with the current winners in that market. That is both an insult and a compliment to Sony; yes, I am saying that they simply aren't savvy enough to compete with Apple and Google right now, but they were at least smart enough to know that. Perhaps Nintendo and Microsoft should have been more aware of their deficiencies. Regardless, the "casual" market is considerably more profitable than the "hardcore" market:
of course Sony would like to have them. They just can't.
I don't think a contraction is necessarily a bad thing since I see the whole Wii thing as an anomaly that was a fluke and shouldn't exist when discussing console health because it really wasn't a sustainable thing due to the Apple/Google hand-me-down electronics game.
Oh it's definitely a bad thing. It's not a fluke: it's a market segment that consoles had... and then lost to Apple and Google and Facebook. It would clearly be a good thing for consoles to have a fast growing, highly profitable market segment, but unfortunately nobody in the console segment seems competent enough to pull them back in again.
Companies will adjust and things will get back on track with more realistic expectations for this generation.
I think we will continue to see the gradual, relentless reduction in developers and releases on home consoles, and contraction of the overall install base will only hasten that process.
But that doesn't mean that consoles will die, of course; just that they are contracting down to a "core" consumer base over time. In this case, when I say "core," I don't mean "hardcore," I mean a group of consumers that is particularly attached to the home console form factor, the way there are handheld consumers who are particularly attached to handheld systems and are loathe to give them up for mobile phones or other portable devices.