No, consoles don't hold back gaming advancement in general. But it is true, that consoles harshly limit what games can look like if developers want to create similar experiences for all systems.
It is just a fact that even the current, so called 'next gen' consoles can not deliver the same graphical fidelity a pc can. So games which are multiplatform release for console and pc usually are programmed for console, and then ported to pc, which more often than not makes the game look not as good as it might.
But there are always games that will still push even modern gaming hardware to its limits, so it would be unfair to say that consoles slow down progression in total. Even with consoles being the big market developers tend to aim for, there will be the occasional Crysis, Witcher 3 or whatever that makes use of modern pc hardware.
Furthermore, it is true that graphics are not what makes a video game good. But you must not neglect it in total. A good game can very well profit from better graphics, if the design allows for it.
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On a side note, I think it's quite sad how firmly people believe that pc gaming is unreasonably expensive compared to console gaming. Yes, a high end gaming pc can cost you almost any amount of $ you can imagine, but it is very much possible to build a pc that runs todays games just as 'well' as any console does for 400-500$, not including the OS. So even if you had to buy a new OS, you'd be at 600$ at most, and comparing that to a 400$ console, this is not off the limits of managable.
So far, yes, a gaming pc will have a somewhat higer inital price, but as a gamer you maybe don't just need the machine itself, but also games. Console games are more expensive than their pc counterparts, and there's no denying it.
Even looking at brand new releases, e.g. Evolve, you spend about 40% more for the same game if you want the console version (amazon.de prices: 59,99€ for PS4 / XBOX1<> 42,29€ PC), so with 10 full price titles bought, you will actually have spent less money with pc gaming. And this does not even count in sales on digital distributors like steam, which happen all the time.
Where's the catch? You cannot be lazy if you want a gaming pc for that price. You'll have to invest time to look up the components that give you best value for their respective prices, you gotta put them together yourself and have an eye on how good they work together and you'll have to make the system work. Building a low price pc that still has some power to it does need some understanding of what you are doing, and buying a complete package in your local store will not give you best value.
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Seizing the idea that connecting pcs locally is terrible: I guess connecting every pc to a single router via ethernet is asked too much? Any decent router will establish a working network in between a number of Windows 7 or newer systems within seconds.
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If consoles would have never existed, it is more likely that then there'd have been emerged more pc developers then than just having a shortage.