So what does Nintendo do when the market for $50 games has evaporated? It's far too late to start looking at mobile and other markets at that point.

Did the market for expensive sport cars ever go away completely?

Or for that matter, has cheap Samsung Android mobiles destroyed iPhone yet?

Look at the sales of the game industry over time (page 12): http://www.theesa.com/facts/pdfs/esa_ef_2014.pdf It's pretty clear the entire industry is shrinking. I don't know about you but if I ran a major game company I would definitely want to be exploring all options for possible growth right now (or better yet 5 years ago). Comparing video games to high end sports cars is apples to oranges.

That report only includes retail sales. Given the explosive growth of online sales, that isn't surprising.

The problem is most major markets for standard gamers are saturated. Thus you have to turn to emerging markets or non-standard gamers. Given the way last generation went and the way the current generation ignores non-standard gamers, I wouldn't call out Nintendo for their lack of foresight in this regard.