MS never entered the vg industry for profit. They were afraid of Sony "owning the living room" - that is, in terms of digital media.
Both MS & Sony are moving further away from games, and closer to developing digital media solutions. This is what both the 360/PS3 are designed around (the CELL is almost completely designed around media processing caps - rather than purely games).
At some point in the future, all comms (video, TV, music, phone, etc..) will happen through these digital devices - and neither company can let the other dominate.
This is essential to the long-term strategy of both companies, and core to their other product lines.
Nintendo is the only company developing a "pure" games machine (that has some multimedia functionality - rather than the other way around), and are reaping the rewards.
Gesta Non Verba
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