the ballooning costs of mega games is completely tied to the health of the hardware market. it's what led to so many closures and mergers, and fewer games being made in this generation. it leads to less variety and decreases risk. every game that comes out needs to be received really well or at least sell a lot. the result is developers catering to an increasingly smaller base of consumers - those with inelastic demand (thank you opiate). this is a problem when the rest of the industry changes around you, making it harder to adapt to a changing marketplace. japan's been a pretty good indicator of where the video game market goes, and even though consoles aren't a thing, the idea of catering to that one reliable fanbase has changed the output of games so that the moe crowd has a bigger interest in even previously successful titles. i don't think it's a coincidence that kancolle sold like it did or that fire emblem has waifu petting. the output on the ps4 and xb1 is the western equivalent.
indies don't need mobile platforms for success. the games i mentioned are popular on steam and pc. i'm not sure no man's sky would be a retail release without sony's help, and the witness is a good example of one game happening by itself that way. i just am not seeing this general interest in retail from indies, nor do i think people are buying dedicated hardware for indie games. more likely, people are buying dedicated hardware for bigger games and stumble across indie games they might have heard about.
the thing about steam is that it offers western gamers what mobile offers japanese gamers. it's a convenient way to access cheaper and accessible games. it's largely community based and there are sales that offer visibility on lesser-known titles all the time. just conceptually, steam is so different in that it lists all of these games side by side. i can find gone home and metal gear solid v in the same marketplace because that's what steam is. i can't go into retailers and find those two games on the shelf in the ps4 section. dedicated hardware isn't geared towards a breadth of games to buy on a whim. your point also ignores that pc business has radically changed. not only are games with lower requirements acceptable enough that they can become successes (five nights at freddy's, amnesia, or what have you), but you no longer have to physically buy them either. i can play bastion or hotline miami on my 2008 macbook pro and i never had to leave my home and they work fine. steam broke down a lot of barriers that had made pc gaming niche for a long time.
your last point for handheld games: first-party developers and third-party developers definitely do not view handheld dedicated gaming devices and mobile in the same way. the fact that audiences are moving from one thing to another is a threat to the dedicated gaming space and not proof that the hardware is the same. we don't section off what hardware is due to audiences.
Again, I'm just not seeing the same thing you are, or not drawing the same conclusions. I'd say we're in the middle of a gamiong rennaisance, not a contraction in output, I see Steam as influencing a rise in the discoverability of software of all tiers from extremely basic titles through Indies and AAA indies like Unravel, Grow Home, and Journey finding the same Audience digitally on PC as Steam discovered and leveraged, I see big publishers like Square Enix, EA and the like suddenly greenlighting a whole host of upcoming games and niche titles, and the lull in their production currently because they missread the market as you have and had written consoles off this gen, only to find the PS4 proving that accertation entirely wrong.
Sure, there is lower AAA output from big studios, and the increased risks involved have lead to some shitty releases, dumbed down mass appeal wank, and multiple studios either forced to work on one title or shut down to save cash, but I also see the Life Is Strange's, the Souls games, the Until Dawns, Alien Isolations, the FFVII Remake's, the Rocket Leagues, the Nier sequels and the Witnesses, all the weird, wonderful, often sensibly budgeted niche titles that are well above the average cheap and cheerful typical Indie game while avoiding the traps of overblown AAA budgets and overwhelming work loads, all thriving in a market you seem to think is on the way out and in need of a drastic shake up.
And not just from Steam. Steam is amazing, it's cheap and open and incredibly inportant to the games industry at large, especially on PC, but i's not without its flaws, too much shite makes it's way to the surface, too many quality titles get lost forever, and the audience that might buy a title on consoles isn't necassarily even there on PC. It's not some great universal platform that suits everyones tastes, or even the majority of enthusiast game players lives. The reasons consoles existed in the first place, why they took so much of the overall market away from PC for so long, still exist, Steam, doesn't make those reasons go away, nor does Mobile, but companies ignoring those reasons, or trying to alter them into what they want the reasons to be as Microsoft and Nintendo both tried and failed to do, leads to the situation we have now with the only cobnsole manufacterer that found any success being the one that learnt that lesson last gen and didn't repeat the same mistake this one.
Or at least, they haven't yet.
I just flat out disagree with you on mobile/handhelds. Plenty of traditional game publishers have moved established franchises over to mobile, often in radically altered ways, so the support for handhelds dropping as mobile exploded is no coincedance in my eyes, nor are those changing handheld fortunes in anyway relatable to the completely different dedicated hardware of the home console market, because handhelds and consoles have never shared exactly the same libraries, audience tastes and experiences. The Vita's utter failure is because Sony never learnt that lesson, and hadn't realised that market had already been lost to mobile anymore than Nintendo did, though the Big N at least always knew to treat home and handheld games differently. Thats why the 3DS has limped on, though I'm certain the NX handheld will see a further shrinkage of audience until we find exactly what remains of the audience for dedicated handhelds.
What it comes down to though, is this: I look at the Console market, adn I see tens of millions of PS4 sales, demand that's up there with the single most popular systems of all time, from the creator of two platforms that were big enough previously to sustain a thriving console market singlehandedly, next to them I see two companies that simply fucked up, and are probably only going to continue to fuck up, failing.
I see a growing digital presense on cosoles more than making up for the death of retail that extends far beyond gaming, and I see companies adapting to that changing market, I see a resurgence in the mid tier and experimental games and I see more games appealing to more people than ever in every section of the market.
In short, I see a bright future for gaming as a whole, on PC, Console and mobile, ahead of us.
Also, I don't buy into Japan being a model to base any other region's predictions on. It's economically, socially and culturally unique, an example of no one's future but their own. Don't get me wrong, the market over there is fascinating, but the worldwide industry stopped followin their lead years ago.
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