Seems there would be an opportunity here for another company to manufacture a system that would be optimized for a local, same room system. The electronic parts and technology are there, and are not expensive at all, it wouldn't cost much to build, seeing how an Xbox or PS4 probably cost under $100 to build, the problem would definitely be getting game developers to actually make games for such a system.
This is the issue with the
existing systems. All current systems DO have tons of local multiplayer games. 263 out of 820 top-rated games on Xbox One have local multiplayer. If these games don't fit the needs of players looking for local multiplayer, then I have no idea what would - so what games would a potential local-based system have?
And bigger games are near impossible to have split-screen in. A lot of people would rather a larger game, in exchange for loss of split-screen.
Would you prefer a game with a large and interesting world (Skyrim, Fallout, Forza Horizon, Destiny 2, even on PS4 they have their exclusives that fit this description perfectly) or a short, simple game with local co-op? But, the thing is, we already have both.
The issue has absolutely nothing to do with the systems (unless you want local multiplayer in open world games - which is not nearly possible to do without very expensive hardware), it's that people can't find games they like. I'm not sure if the existing games are just not good enough, or what, but the state of local multiplayer is not that different from what it was a decade ago.