In what has become a successful business model, many developers give away their games for free, then charge players later for status upgrades or gameplay perks.

"Say what you want about freemium, 'nickel and diming' of players, but I'd sooner pay nothing up front and $5 to $10 later than plunk down $60 on a game and hope I like it," says Crook.

Ubisoft's Hutchinson refers to it as a rising "fear" among console gamers. With so many deals to be had elsewhere, a lot of console gamers are making fewer full-price purchases than before.

"The free-to-play model has certainly impacted the industry," agrees Zynga's Neurath.

On top of that, 99¢ iPhone and iPad games are also taking a toll on the perceived value of dedicated gaming systems. Even PC games go on sale for as little as $5-$20 on occasion, a trend that has breathed new life into PC gaming and changed how some of the most ardent gamers value games.

"The business model for a five-year life cycle isn't working for Sony and Microsoft," says Cole. "They spend billions to R&D and market these new systems, they sell them at a loss for the first few years and then they don't really have the software business to make up the cost. They are better getting out of the business entirely rather than go after a five-year life cycle."

How console makers can fight back

In wake of all these changes, what's a console maker to do? What might reinvigorate interest in living-room and dedicated handheld gaming?

A first step would be fresher consoles themselves. The Xbox 360 is 7 years old, while the Wii and the PlayStation 3 are both 6.

Newer motion-controlled gaming systems such as Microsoft's Kinect and Sony's Move, which let players control in-game avatars by moving their arms and legs, have helped sustain interest. But experts say more upgrades are needed.

"New consoles would help, and the rumblings have already started at Microsoft and Sony," Hutchinson says. As if reminded by the lackluster sales of the handheld 3DS and PS Vita gaming systems, he adds, "But I don't know that we really need a new hardware cycle at this point from a creative standpoint."

Zynga's Neurath, who's worked with consoles and PCs since the 8-bit days, says console makers would do well to act more like nontraditional platforms. A new console dubbed Ouya will launch next year with free-to-play games and a $99 launch price, but keep the focus on what its manufacturer calls "TV gaming."

Crook believes there is still plenty of time for traditional console makers to correct their downward trend.

"There will always be a big market for core game systems," he says. "It all comes down to how consoles can get back to taking creative risks again, and what the platforms can do to broaden their markets and offer innovative means of interaction."

Ubisoft's Hutchinson wants console games to deliver more meaningful experiences.

"Games need to explain to players why they made certain artistic decisions, what mood they're setting with their lighting and color choices, and less about the technical features," he says. "We need to offer more experiences that are understandable to people's real lives, either in terms of mechanics or narrative, and attract people who don't read fantasy novels or watch the SyFy channel. Our mechanics are often not the barrier, but our content sometimes is."

The good news for the industry, and for gamers, is that video games in their broadest sense are most definitely here to stay. It's just that the way we access, control and define them has rapidly evolved. Despite the weakening sales of consoles and console games, the growth of mobile, social and PC-based games means that total spending on gaming is actually on the rise.

"Inviting more people to the fun and wonderment of games isn't just good for social games, it's good for the entire industry," says Neurath.

It will likely take at least one more console cycle to gauge the long-term sustainability of dedicated gaming devices, experts say. Their ultimate survival all depends on how well console makers adapt to evolving business models and changing consumer tastes.