I know what Sunk Costs mean, but people pull out of businesses all the time. Sega's Dreamcast had a "sunk cost", and they decided to stop producing their console because they would never make money.
I don't really think you understand the impact of Sony winning out with blu-ray. This is going to be the format for the next 5 to 7 years, and if MS makes a new console, it wil HAVE to contain a blu-ray drive. Because that tech will be the only one which is cheap to produce (by then). But that puts them in a tight spot, because Sony will get money for every Xbox 720 they sell, and every game they sell.
Shareholders know this, and are NOT happy with the way things are going. Why the hell do you think MS gave Paramount 100 million USD to stick with HD-DVD?
Their only hope now is for Digital Distribution to catch on very fast, but frankly, most parts of the world are just starting to have high speed internet. And their 720p hd-ready movies, which you can play two times, and are then deleted, are no match against a BD-disk which you can store, lend out to friends, of watch later on.
I'm telling ya, if PS3 surpasses them in the USA, there's a 50% chance MS will pull out of the console war. Because if they can't win now, blu-ray and their bad reputation (RROD, the fast abandonment of Xbox 1 and probably Xbox 360) will prevent them from winning the next round.
Their plan was good, but they didn't see the RROD coming, and they didn't think Nintendo would rise from its grave. So right now, they have their hardest battle before them, and not much ammo in their rifle.
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