One of Microsoft's major problems was they screwed up their contract with Nvidia. They forgot to put a clause saying that as the system price came down so would the price MS paid Nvidia. MS expected to be paying say $40 at the start and $20 at the end and instead got stuck paying $40 for every Xbox. Doesn't sound like much but times 25 million systems it comes to around $500 million. Now MS is with ATI and BC on the 360 suffers as a result. Even when winning console races it isn't easy to make money in the video game industry over the long run. Nintendo is the only company to do it for more than 12 years. Atari folded, Sega folded, Sony is not showing any signs of making money this generation, and MS would have been kaput before they even started if not for its mountain of cash. Nintendo has been able to do it since it has 2 peculiarities: they don't sell their systems for a loss, and their first party game attach rate is at least 3:1. We know this model makes Nintendo profitable even in last place since they made a decent profit on the GameCube despite only selling 21 million. Sony and MS both lose big money on the hardware and especially MS are below 1:1 attach rate. Of course they make money on every game sold but they far more on their own games. Sega couldn't make a profit in last place despite having the second best 1st party games so we can reasonably infer that neither MS nor Sony could do it.
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