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Running Live costs Microsoft money, so a portion of what people pay does go towards it's upkeep.

Not all of it, but then this is business where you mark stuff up to make money.

The main point here is that Sony's PSN being free is not sustainable. It'll be costing them. They have to get money from somewhere to pay for it. They're hoping that advertising on Home will do this. And microtransactions too. Sony mark stuff up too.