Sony's tightrope, and it's implications for future console generations.

[Erik Aston]

Lets ask ourselves WHY Sony and now Microsoft sell at a loss. Nintendo makes money from their hardware AND software, makes significantly more money from first party software than Sony and MS, and has both a successful handheld and successful home system. When Sony was initially entering the market, they were just going to have a home console and mostly third party software. Again with the PS2, these were the only areas they'd be able to go head-to-head with Nintendo. The reason PS2 and now PS3 were sold at a loss, is because Sony spent so much money developing "convergent" entertainment platforms which would establish non-gaming revenue streams. PS2 was an aggressive attempt to do this. When it failed, Sony went on to make less money than Nintendo during the generation. At that point, Sony released a handheld system and tried to crank their internal production up to Nintendo levels, imitating Nintendo, because I guess its kinda embarassing to not make more money than your supposedly marginalized competitor. The loss-leading strategy has always failed, because it was always designed to create more revenue streams. Sony and now MS have been forced to sell their systems at a loss because they're Trojan horses, which is a nice way of saying consumers don't put value in their extra features. You could say selling at a loss helped them move more systems, but even lower prices from Nintendo and Sega never helped them move more systems. The bottom line for a console is that it needs compelling, attractive software, and an affordable price. PS and PS2 positioned themselves perfectly to get tons and tons of compelling software and were affordable. But PS2 could have been just as successful in terms of revenue and sales if its development and production was as cheap as Gamecube's was, or only higher due to DVD-playback.