The business model which justifies the creation of systems like the XBox 360 and PS3 largely depends on the system maintaining a virtual monopoly on the market; this monopoly is needed in order to control the rate of price reductions, recover losses through licencing fees on third party games, and to leverage the large usebase to create additional markets (XBox Live, Blu-Ray).
Essentially, if you spend $2 Billion on research and development of a platform, you then spend $2 Billion (over 5 years to market the platform, and then you only sell 20 Million units at an average loss of $100 you need to make up $300 per system in order to break even. On the other hand if you spend the same $2 Billion on research and development, $2 Billion on marketing and (on average) break even on the sales of 100 Million consoles you only need to recover $40 per system.
Nintendo's approach is far more maintainable from a low sales perspective (small research and development cost and marketing costs recovered through a profitable system sales) and will be amazingly profitable if they're in a dominant position.
