Gaming itself is changing, and the ways in which this nascent industry is evolving are many. The future of gaming is multifaceted, uncertain, and even frightening.
First let us take stock of the three current spheres of gaming, PC, Console and Arcade.
Arcades are where gaming started, but are now largely relegated to gimmicks and unique control interfaces to continue functioning. The fall of the Arcade can be traced to the onset of home portable gaming. PCs were the harbinger, but it was console gaming that stole the masses away from the coin glutted cabinets of the Arcade. While Arcades maintained graphical dominance even into the fourth generation of consoles, the convenience, cheaper cost, and portability of consoles and eventually PCs as well overwhelmed the graphical edge of arcades. Shipping a new machine to arcades was more difficult than releasing a new video game to retailers. Today all Arcades can offer is a unique experience.
PCs today are relegated to a few niche genres and casual, browser-based games. PC gaming was to the Arcades as television is to movies, similar but overall an experience of lesser quality. This situation was turned on its head by the third generation of consoles, with gamers spending in excess to build PCs capable of graphics equivalent to or beyond what was affordable in arcade. This subculture of gaming riggers continues to this day, and still acts as the driving force behind hardware advances. Still, most PCs aren't built for such intense processing, and many people aren't interested in giving their children a reason to compete for time on the PC.
Consoles currently dominate the gaming industry. Consoles are the youngest sphere of gaming, created out of a desire for Arcade quality gaming at home. This feat wasn't possible on PCs back when the first Atari was released. PCs eventually were able to, but Consoles were far cheaper and matched Arcades. These factors continue to push the dominance of Consoles, even as the lines between them and PCs are blurred. Getting cheap, convenient quality is a hard bargain to pass up.
This is where we stand today. The detail is present because it gives some sense of from where and how the industry has traveled thus far. This is important in considering where gaming is going.
First, Console gaming is dying. This seems a drastic statement, but the situation is as I have stated. In two decades consoles as we know them will cease to be relevant. Consoles are already far diverged from the machines we saw in the 1980s. They are almost identical to PCs, save for their unique form factors and input devices. In a surprisingly short amount of time Consoles will be little more than prefabricated gaming PCs much like Alienware makes now. Proprietary installations will likely continue for some time, but it's only a matter of time before the homogenization of features and hardware begins to defeat the purpose of separate machines.
Second, there will obviously be a resurgence of PC gaming, though PCs as well will have changed. As consoles become more PC-like and the industry transitions back, demands will come for consistent, stable hardware on which PC gaming can be supported. All current Console makers will surreptitiously transform their consoles into gaming PCs, attempting to become the standard. Eventually one, or more likely Alienware, will emerge as the basic standard, with the others being only tangentially supported.
Third, a new sphere of gaming is fast emerging. While gameboys and the like have been around for years, only those with more than a passing interest would purchase them. Now, however, everyone has a phone or portable device capable of playing game, whether they initially intended to use it for that purpose or not. This sphere will dominate the casual market, and even introduce new genres possible only such a widely mobile and ubiquitous platform. Kids will catch Pokemon not by moving a virtual character around a virtual environment, but by walking to school, to the cafeteria, running around the yard and more.
Fourth, the future of Arcades will depend on future technology. In order to survive, Arcades need a new technology that is too expensive for home use. They might attempt to cache in on mobile gaming, acting as hot spots for events and special rewards. Failing a new technology, Arcades in the US will become an antiquity, something novel but no longer critical to the industry. They will continue to have relevance in Japan, but that will also diminish without a significant, unique hook.
Most importantly, by the time all this has come to pass a point will have been reached where additional graphical power is largely irrelevant. A difference will remain, but it will be largely unnecessary for story-experiencing purposes. Gaming will experience it's own "impressionist" movement, moving away from photo-realism and graphical superiority to more creative and interesting uses of computational power. Corporations, however, will act to squelch or ignore such titles initially as they will continue to trust in the staple genres and styles.
See you in 20 years.