Hey, all. Actually a lurker here for a long time, one of those unnamed Guests you see in that "users browsing this forum" stats bar at the bottom. First time for me to post in this new forum format, since I had been a member long ago around 2001-ish but disappeared after a while. So, yeah, I'm guilty of the "this post brings out all the newbs" phenomenon commented on earlier in this thread.
Here's my two cents on this issue, as someone working in game development myself. I will be speaking primarily from experience at first, since for me to analyze the overall market situation would take an arm and a leg, and several days' worth of research. Which I don't have the luxury of.
From what I have observed over the past two years at least a large portion of the market has swung greatly into the realm of casual gaming. We're talking Facebook games like Cafe World and Farmville and all that jazz, not to mention all those games people keep putting out on Big Fish (which are ultimately just clones of Ravenhearst or Dream Chronicles--and I predict, in future, Drawn: The Painted Tower). They certainly aren't kidding about the "A New Game Every Day" tagline, even when most of those "new games" are things we've actually seen before.
Without going too much into the console wars issue, I imagine it would now be pretty easy for folks to see where a sizeable portion of game development has swung towards as well. The casual market is now one of the players with the big bucks and it's dictating what pitches management will accept. Additionally, software development scheduling processes and learning curves aside, casuals are far easier to put out compared to your standard Call of Duty-wannabe FPS or Dead Space on the other side of the spectrum, now that companies like PlayFirst have put out devkits like Playground in order to make hidden object games with, for example. Less manpower, less development time, and more income.
Now note: this is the sort of stuff people would tinker around with while sitting in front of their office PCs just to while the time away. Now, I enjoy Plants vs. Zombies a good deal myself--probably because it was a casual game created by hardcore gamers--and I don't want to shy away from a casual game just because I'm hardcore, but come lunchtime at the office, while others were either busy killing each other in DOTA or managing stuff in Farmville and Pet Society, I'm usually the only one trying to perfect my CRS68K and StellaVanity runs. Heck, there were only two of us struggling to collect mats for building armor in MHFU back when it came out. What does that tell us about our modern demographic?
Personally--and I mean to take this with a grain of salt--the situation screams captain obvious. Lifestyles have changed and trends have as well; it's not something we can chalk up so easily to people getting lazier or whatnot, although there is a measure of truth in that too. With the advent of newer technology, tastes have been altered more and more over the years as new concepts and hardware came out, and I mean that on all fronts; not just gaming. It was the overall lifestyles of those living in countries or states wherein gamer demographics are present that changed.
And as was inevitable, everyone wanted to jump on the bandwagon. More people nowadays have better access to PCs than had ever been before, even in third-world countries like the one I live in. Heck, in fact where I live children from low-income families can find the time and money to play localized Korean-made MMOs in a PC shop; heaven knows how they're going to pay for school lunch the next day. And development wise, it's now easier for people to access PC game development through tools and devkits such as Game Maker or Torque, the former of which I personally use.
Now, gaming trends. I recently went to an arcade and looked around for any Espagaludas or GigaWings, and instead all I found were Initial Ds, Midnight Rs, a LOT of Time Crisis sequels and various rhythm games, along with your standard MvC2s and Tekken 6 BRs. Guess what shooters were available. That's right, Raiden Fighters Jet and Strikers 1945 II (Exarion's research has officially been vindicated

). Not even the arcades here want to carry things like DeathSmiles, Ibara or Mushi; they want Soul Calibur machines and Tekkens lined up end to end, right beside the light gun games. Ironically, very few Guilty Gear XXs or BlazBlues, but you get the idea (I haven't even seen a BlazBlue machine here yet).
Again, it must be mentioned: that's where the money is, and people need to eat too. But on the flip side, It seems people want more direct competition nowadays on arcade machines. Humans are social creatures, after all. Who doesn't crave a little interaction? The big reason a game series like Monster Hunter Freedom is relatively successful is because of the face-to-face interactivity it provides with other fellow "hunters", allowing for on-the-fly strategizing. And let's not forget the plethora of LAN games that Counter-Strike and WarCraft inspired (and arguably, those who went before them like Doom and Quake).
Now, all that I have mentioned doesn't really have anything much to say about shmups. I concerned myself with explaining current trends as I see it unfolding. The question is, how can shmups survive in this environment apart from being a niche genre?
For one, here's a link I retrieved from EDGE Online regarding a 2008 convention of STG developers in Japan. It may have been posted here before, so please excuse me if this is a re-posting (although in fairness, if it had bee posted here before then why was it not mentioned on this very thread?)
http://www.edge-online.com/magazine/sta ... 80%98em-up
Even the Japanese developers themselves are getting skittish over the state of one of their apparently most popular genres.
You guys might also want to take note of a recent shmup MMO that is currently on the market: Valkyrie Sky.
http://valkyriesky.gamekiss.com/main.jce
It's interesting how the Koreans are now exploring these older genres for inclusion in ther MMOs; we currently have Arad Senki (beat-'em-up) and MapleStory (sidescroller).
Well, that's my two cents for now. Going back to work...