The current (7th) generation of consoles is fast approaching the end of its life cycle, with sales declining some 30% year-over-year through the first half of 2012.
According to ABI Research analyst Sam Rosen, hope for recovery of the market in late 2012 and early 2013 now rests largely on the next-gen Nintendo Wii U with its tablet-like GamePad.
"Nintendo's innovative TVii feature is also notable and might match if not exceed what Microsoft has done in the multiscreen market with XBOX Live Gold," he explained.
"[Yes], Nintendo is expected to target core gamers with stronger third party developer support. However, the Wii U's hardware may not improve on gaming performance levels compared to Microsoft's Xbox 360 and Sony's PS3, both current generation consoles."
As such, says Rosen, the Wii U's success is contingent upon first party game titles and the ability of the unique user interface to improve or augment the gaming experience.
"Launch titles are expected to be relatively strong, but Nintendo has extended its launch window from release through to March 2013 in order to include more games... With adequate marketing we expect launch demand for the Wii U to be strong, but long term success will depend greatly on establishing a unique and desirable user experience with the Wii U GamePad (tablet)."
ABI Research analyst Michael Inouye expressed similar sentiments.
"Nintendo will need to create separation between the Wii U and current consoles from Sony and Microsoft. If games are available across all three platforms, with equitable experiences, then the Wii U will likely fail to generate much interest from the core segment.
"[As such], we expect the Wii U launch to bring 2012 shipments close to the 2011 totals with early 2013 returning to early 2011 levels. Sustaining this level will depend heavily on continued Wii U demand as well as offerings from Microsoft and Sony," he added.