How do you know if a game or console made profit or not?

[Sullla]

FishyJoe said:
I'd say the best way to know for sure is to read a company's financial reports. By law they are required to accurately report their profits. While you won't get a breakdown of individual games, it will give you an indication of the success for their product categories.

Bingo. This is really the best way to find out whether or not an individual company is profiting on their hardware and software. All publically traded companies are required to post their financials, so with a bit of searching you can usually find out how much money they're making. Nintendo and Sony are both about to disclose their numbers from the last quarter (Microsoft just did so), making this a particularly good time to investigate these issues.

That's the best way to discover whether or not a console is turning a profit. Individual games are much more difficult to determine, since companies will usually group them all together in financial statements. Sometimes a developer or publisher will publically disclose their costs, allowing estimate to be made as to the number needed to be sold to turn a profit. More usually though, companies keep these numbers quiet, to avoid the potential for embarassment in the event of a flop. (A notable recent example was the much-hyped Gundam Musou for Japan's PS3; Namco-Bandai stated that at least 500k copies need to be sold to turn a profit, and the sales barely reached 300k.)

What few gamers seem to realize is that the margins in the industy are very slim. Development costs are expensive, then publishers take a cut, plus shipping, marketing, retailers taking a cut, console licensing fees have to be paid... you get the picture. One of the big secrets of the industry is that most developers actually lose money; only the really big publishers (like EA) consistently turn profits. Among some of the biggest names in the industry, here are publishers that are currently losing money: Take-Two, Microsoft, Sony, among others. Now when you get a real hit on your hands, the revenues can be gigantic indeed (see Activision and Guitar Hero for a good example), but most games lose money, and most developers do too. Be careful about investing in many of these companies!