Using Laa-Yosh as a jumping point...
The reason is simple, the PS2 user base was a lot more varied than most people think. For every Gran Turismo, GTA and Finan Fantasy that sold 5-10 million copies, there were at least a dozen casual games selling 500K-1 million. Most games haven't even reached more than 5% of the total user base.
With the Wii, a lot of the PS2's market was taken over by Nintendo. Another part was taken over by the X360, and now we no longer have a single system with a monopoly over the market. I strongly believe that this is good, certainly better than giving all the power to any of the console makers. So there's no need to worry at all.
Of course the reverse is that publishers have to be vary careful what platforms they release titles for and what features they include. With the PS2 you just released EVERYTHING on it and it sold. Now a company like EA makes a multi-hundred million dollar investment (over a number of years) into a franchise like Madden and it bombs on the Wii and sells gangbusters on the other platforms. And then you have the consumer dilemma: what if your interests (personal, or "household") span across more than one core demographic? Buy 2 consoles?
So on the one hand having 1 console to rule them all means less power to persued the console maker to cater to your needs, on the other hand there is less doubt and more security.
It will be interesting to see how this plays out next round. Consumers are very, very fickle. Nintendo and Sony have both looked unstoppable in the past and both have been humbled at least once now. I agree with a lot of Ranger's commentary and think it would be a huge mistake to assume that there has been a swing toward casual gamers as I think the issue is we finally had a bit of disparity in console products (marketing, games, hardware, pricing, features, services, etc) that resulted in demographic stratification we hadn't seen before.
While I don't believe the current rumor of a "PS3.5" if that comes true that means whoever aims "relatively high" in regards to hardware and keeps the price at/under $399 at launch would have prime pickings for the hardcore market (which buys a lot of software, active in consumables online, etc). And while game development costs continue to rise (something EVERY console must address... although the "just don't improve the HW!" approach is a longterm FAIL) there is a market of games that continue to sell multi-million copies in this market.
I wouldn't be surprised if we saw "blockbuster" game pricing go up to $70 next gen and potentially some price staggering (casual titles in the $40-$50 range for example) and where we see a more Hollywood revenue model where we see some cheaper games at cheaper prices and for premium content you pay a premium. DLC and post release support, 1st owner specific content to discourage resale, membership fees, and trying to minimize "2 or 3 big games supporting all the flops" as well as minimizing the effect of the unknowns of marketshare fallout (besides Teasy and Natoma, who predicted "Revolution" would win this round of console unit sales in early 2005?!!) A number of publishers have been hit pretty hard this generation because they bet wrong in regards to demographics and platform leadership.
Per the Wii, I think Nintendo did a great job of coming in much cheaper than the competition at launch, was completely different, was "accessible" to a wide range of consumers and "family friendly" and (a) marketed it as such (b) had the software to back it up and (c) the press got behind it. People "got it" 15 minutes into trying it. It had the wow factor that the old, old consoles had before there was such a thing--it sucks consumers in. Every couple generations a new concept emerges that "revitalizes" the industry and allows it to appeal to new consumers. Sometimes this comes in a big way, others not so much (e.g. the Xbox and 360 with a HDD, then Live, and then HD in conjunction with strong PC dev support really migrated a lot of PC gamers to the console market). The PS3 and 360 chose more incrimental routes of wowing consumers, and the Wii took a huge, huge gamble.
The Wii-mote could have flopped.
Instead it caught fire and it became the "it" gift. And Nintendo played this up--just look at production. I know people who spent nearly 2 years looking for a Wii! This gave off a perception that it was such a hot item that it kept the item in mind as well as desirable.
What is interesting is how Nintendo did this. They obviously are not competiting in a number of markets or features. e.g. The Wii's online play is pretty poor compared to the original Xbox in regards to what "hardcore gamers" desire. Even MP3, maybe the Wii's best FPS, lacks online play. The Wii conceeds a lot of traditional titles and genres and definately sells towards its strengths (which happens to be Nintendo style software). Something old, something new, something different. But Nintendo identified that the casual market they could capture was larger then competing for the "hardcore" consumers MS/Sony would be fighting over. So while MS/Sony would BS about PR specs and pixel counting to convince a demographic which platform to buy Nintendo was VERY focus with their marketing and they went for the market MS/Sony neglected.
MS's/Sony's casual game portfolio from internal studios is pretty pathetic. And while the casual library in general is underestimated I don't see why casual consumers should know this (just walk past a kiosk or a display case and see what I am talking about).
Further, Sony and MS have been pretty inept in some ways. Sony came in at $600, a year late, inferior products and ports, a press roll of bad news, firings of key Playstation personel, a bitter optical format war that looked uncertain, and a general sense of over selling and under providing (both units and software). And then the bad news set in that the PS3 was selling poorly and it snowballed. Software was delayed, and delayed... and delayed. Devs complained, huge titles bombed, Sony marketing continued to stink. They were a year late, half baked, and left a bad taste. Things have leveled out, but without the Playstation brand and huge PS2 sales there is no doubt the PS3 would have been put out to die a long time ago. MS started off well, but had a bit of shortages... and then RROD set in. Their two year plan seemed to fade as RROD killed them internally which in turn affected process shrinks. MS saw a continued trend of software slippage and have appeared content for over a year now to just ride the wave of their launch. Snag a few titles here and there, make money, continue the Xbox brand strength in English territories and allow the launch push fall to the way side everywhere else. MS has built headway with Live but they seem pretty content not losing to Sony moreso than pushing for market leadership (too expensive due to past blunders??) The fact it took them almost 3 years to drop 33% in retail pricing pretty much sums up how their early push turned into "damage control! don't let the ship sink! ride the wave!" mentality.
So while MS and Sony were erroding consumer confidence with all this mess (I didn't even mention confusing them with multi-skews and the impression of the affordable ones, which were still very expensive, as being inferior for gaming) Nintendo hit home:
They were cheap.
They had a specific market in mind.
They were unique.
They had a single voice.
They had a pack-in title people "got."
They connected with their market.
The irony is that after a decade of being plastered with the kiddie console tag, Nintendo embraced it with a spin: they are the "everyone" console, the non-gamer gamer console, the family friendly play with your kids and grandma console. And they had a history of titles like Mario (+ Party, +Kart, etc) and so forth to connect with that market. They had a heavy handed history of removing "progressive" boundary pushing features/games (like blood in MK) and didn't have any association with games like Grand Theft Auto. What was hurting them turned into a strength with the Wii.
The hardware and software sales show that not everyone matches to the Nintendo beat--but that is the point. They didn't try to be everything to everyone. By not competiting with Sony and MS they beat Sony and MS.
But the market is fickle and the question is: what will consumers want in 3-4 years? Sony and MS will reel in costs. Both will have waggle. Both will be more conscious of casual gamers.
People are still going to want their Halos, Final Fantasys, GTAs, Maddens, Gears of Wars, Guitar Heros, and so forth. The technology hurdles next gen do offer some issues as well as some oppurtunities.
But just following the Wii formula isn't a sure win; if 2 companies go that route that leaves the other to reap the sizable hardcore market. The question is can one maker consolidate the markets? Is there enough segmentation of 3 distinct markets? Is it better to have 2 unique cheaper consoles and 1 hardcore console? How much will features and services tied into other media distribution channels play into this? Will we finally see a console be a multifunctional device in terms of computing (we are almost there with browsers and Google Docs)? What happens when a console turns into a VoIP phone, TV/Movie distribution device, gaming center, basic computing device, etc i.e. a real digital hub? How do you market this? How much value does it have? How much does it hurt NOT to have these features? If you lack these features what PRICE do you have to enter with? What market do you need to hit?
I think old formulas do not apply. BDR hasn't driven mass PS3 success to historical levels (although it has surely helped the PS3 a lot since it beat HD DVD). I think the general rule is: the business is a crapshoot. You need smart people with a lot of intuition and some luck to get it right.
One trend I do see is a growing focus on relationships; services like XBL and PSN being to establish company-consumer relationships. How many Live customers would jump to the Wii2 or PS4 knowing they would lose their achievements, XBLA games, downloaded movies, etc? In this regards we may see some stability in consumer affiliation.
