I ran across this article today. The upshot: the console gaming industry is casting a nervous eye towards cellphone-based games as a drain on market-share. The poster-child here, of course, has to be Apple and their powerhouse couple: iPhone and App Store. To quote from the article, "Of the 758 new game titles shown at the Tokyo Game Show, 168 were for cellphone platforms — more than twice as many as in the previous year.". Interestingly, Apple was absent from the Tokyo show.
There are a lot of smarter people than I who are looking at these market forces and confirming that the cellphone platform is a legit threat. But I don't see it that way. I think there's room for consoles and cellphones and I doubt anyone's slice of the pie will need to be cut into finer wedges.
On my iTouch I have a few games: iShoot Lite, Jellycar, Assassin's Creed (Demo), and a few others. I've tried them all, but I only come back to one or two on a regular basis. Fact is, these games are for casual use only. They're great for whiling away the time in the dentist's waiting room, but I don't find myself clearing a few hours to spend time in that gaming world. The form-factor is just not built for that kind of gaming, I think.
In addition to offering casual gaming, the cost is cheap. I'll never spend $50 on an iTouch game. I'd even have trouble spending more than $5 or $10 on a cellphone game. I'm more comfy with a few bucks risked on an iTouch game. Even then, there better be a try-and-buy version. The reasons are simple: an iTouch provides a low barrier to entry for anyone to write software - including games. There's lot of choice out there. The flip side of that coin is that there's a LOT of dreck out there, and it's caveat emptor all the way. I can't afford to experiment too much.
For console gaming, the biosphere is a bit different. Enthusiasts aren't providing a ton of content in that world (save the most motivated of souls). This limits the choice to studio-produced games that we are only too willing to shell out $50 to own. Even there, we seem to rely on an eco-system of professional reviewers and marketers to convince us to part with our dough.
In the PC-land, both worlds seem to be colliding. While big-budget PC gaming is not dead yet, studios like PopCap are really embracing the low-end, low-cost, big-fun games (and they get the need for try-and-buy). Maybe this is where PC gaming will end up: PopCap at one end and big-ticket MMO at the other, with consoles trying to own the middle.
I don't think the folks at Square Enix have a lot to worry about. Rather, they need to be considering how to exploit this nascent cellphone gaming market. There's room enough for all, so long as the studios realize that not all gaming is created equal.