There's not much market share for VNs to start with.
The problem is what really destroyed Nitche Japanese devs was gatcha games and mobile games. That's what gutted them a decade ago so you're not getting shit like Power Shovel or Robot Alchemic Drive anymore. The only thing you're getting from smaller devs is mostly unambitious titles that copy phone game mechanics. They're not the japanese games that people used to associate with smaller dev teams.
Prime example genshin Impact released and wound up being more of a money maker than the next 15 or so japanese titles released in the same timeframe. Even though is a a pile of Chiense Spyware that's a piece of shit.
Visual Novels are also a stripped down genre of what used to be Text Adventures.
https://youtube.com/watch?v=B0ZSXG8zFik
When i say visual novels are trash, it's mostly because they're vastly vastly inferior to what text adventures were. Much like how MOBAS were garbage compared to Warcraft 3, visual novels are the retarded step down from what was once an actual genre at the forefront of gaming.
Same with Walking simulators, Myst and Riven were the height of gaming once and they cut out all the actual game bits so people could get a story and only a story.
In both instances these audiences don't want to actually play videogames they want a passive experience and not an interactive one which defeats the purpose of games to start with.
Smaller lesser known titles that show some level of competence tend to get picked up by western branches of Japanese publishers. For example NISA is publishing the sequel to Fallen Legion: Rebellion in the west which is a 2D Valkyrie profile style game that gets real close to aping Vanillaware's style. These types of games are not effected by Sony's policies mostly because the publisher does all the heavy lifting.