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bumidan said:
the big thing is the structural deficit.

lets pretend they produced a blockbuster game that quarter.

So if all our assumptions are relatively "correct", then if they produced a hit like MGS4 (1st party), then:

Sales = 4 million units
Assume profit is greater coz it is 1st party = $5 per unit (instead of $2)

then that is still only $20 million, out of a loss of almost $400 million

Lets even pretend they made HALO 3 in that quarter.
According to MSFT - Halo 3 earned REVENUES of $330 million.

EVEN IF (VERY BIG IF) they made a NET PROFIT OF $50 million on Halo 3, then IT STILL DOESN'T PUT A DENT in that LOSS.

So even if they keep producing a Halo 3 1st party BLOCKBUSTER every quarter, they lose money.
Again, note that last quarter Sony made money.
And HOPEFULLY in the Holiday quarter, they will also make money.

But PS2 is basically dying, PSP is not selling any software (where the high margins) are.
PS3 is selling decent software and hardware

But the division is still BLEEDING money...
so there must be some sort of structual problems, because it is now 2 years in.

that is assuming the PS3 is almost BREAKING EVEN on hardware already....

I think your estimation of software profits are way too low.

For example a revenue of $330 million will easily translate in a profit of $200 million for Halo 3. Assuming the development costs plus marketing costs are around $100 million is already an overestimation imo. 

However, Sony doesn't have first party hits like Halo 3. We can assume that some have been profitable, but indeed don't make a real impact on SCE's financial situation. Most 1st party software has been bundled anyway. In my estimation on the software that has been released there's no cumulative gain.

I think PS2 and PSP hardware make at least $10 profit, PS2 probably much more. Retail price is $120 for an 8 year old console. I wouldn't be surprised if it made $75 per console.

The main lossmaker is PS3 hardware and the enormous overhead of gamestudio's. Sony has more gamestudio's than Nintendo, and I've estimated before that Sony's software doesn't earn money. At this moment there are several enormous projects underway with huge teams that all need to be paid. Gran Turismo 5, Killzone 2, God of War 3 etc. We can easily assume that the best (and therefore most expensive) teams are working on these titles.

If you try to incorporate that in your estimations it could be even better, although I'm impressed with what you've done so far.