Why Downsizing Makes Sense for Sony
Last gen (7th), the ps3 started off poorly to say the least. With waning developer support and consumer interest, Sony had to work really hard to court consumers. Also, with an expensive console and Nintendo ruling the casual and family markets, it meant that games aimed at that audience were no longer feasible.
Against that backdrop, Sony began expanding its first party offerings in the direction of the "hardcore" market who would be willing to shell out $600, which saw studios not only expand but change direction. This saw the decline of certain genres on the system, mostly platformers, and a rash of games targeted at a more adult demographic(shooters and racing).
The expansions of these studios were also fueled by the hardware it self. Sony's Cell technology, while impressive, was very difficult to use and optimize and along with the demands of HD gaming, saw many studios take on personnel quickly in an effort to cope.
The outcome of these efforts were individually mixed, but the overall effort meant that sony eventually found their way in the 7th gen, and are now poised to have the PS3 overtake the Wii in 2-3 years time. Bear in mind that the PS3 is yet to be officially priced below that of the Wii Launch price.
However, this gen (8th) has seen Sony bolt out the gate ahead of Microsoft and the WiiU seems momentum-less for the short term at least. The result is two-fold. For one thing, they may no longer need as many first party games. They have retained third party support in general and thanks to a more developer friendly attitude and hardware, they have seen record support from PC game makers. Many first party games have performed poorly and sending these out into an even more crowded release calendar will not do them any favors. It's also worth noting that many of the franchises launched on the PS3 are either seeing or on the verge of seeing franchise fatigue. Games such as Resistance are a big risk given the progressive decline in sales.
The second consequence is a change in the types of games needed. First party shooters and racing games may not be as crucial this time around. What is needed are the games like Puppeteer and Tearaway that are aimed at the family market that has not as yet returned to Nintendo. The time to court these people is now, and we may have already seen early efforts in the form of Knack which seems designed to play with a younger child controlling a stronger second character.
This could explain the project cancellations and downsizing that has been occurring recently at Sony studios. They quite frankly don't need as many games as before and they definitely don't need the same types as previously.
This is not the first time that we've seen something like this and it certainly won't be the last. Think back to Microsoft at the beginning of the last gen as well. Microsoft came out the gate strong with many First Party studios and platforming games such as Kameo from Rare studios. However, as they found their audience and stronger third party support, they too changed directions. No more platformers came and fewer first party studios were retained. This gen, with a good but comparatively slower start, they once again have begun to bolster their first party stable.
The point of all this is that First party efforts are fluid and need to be diverted to flow in the direction that the company finds itself going at the time. While many fans welcome the sight of the PS4 tearing away from the pack, the success means changes and those may not always occur in your favor.