Don't forget they also said they will bring PSN to other Sony devices such as TV's and Blu-Ray players and more

They also created a new company called Sony Network Entertainment for this purpose and Kaz Hirai is in charge of the company

If you think that PSN makes money, which I really have NO clue about, imagine how much money XBL will generate.

OT: I doubt advertising space for Home costs a lot to be honest. Maybe 80,000 USD or somewhere in this range for aomething like Red Bull did. Hardly enough for covering all the costs.

Is there much advertising in Home? If so, what companies are running ads?

I have heard about people losing their bond certificates, so I guess losing a gift card shouldn't be hard to believe.

And I thought only retailers have to pay the credit card payment fees at the point-of-sale?  Does it go further up the chain than that?

That kind of statement really doesn't say anything though. There are a number of ways to generate it. For example, this could be pure cost of running servers, demo costs (which are likely not fully pushed on the publisher due to how many demos continue to pop up), creating new servers, expanding the service to work reliably with the ever increasing number of users, etc. Notice how none of that is remotely designed to generate revenue though. Factor those in and it could be profitable, but labeling it as a losing endeavor makes for a good positive PR sound bite. Sony is announcing how much they are willing to sacrifice for their consumers (no emoticon can roll its eyes hard enough to express my contempt for that sentiment).

It could also just represent an opportunity cost. Sony could have projections for implementing a small fee for the PSN and use it to figure out how much money they could reasonably get without significantly hurting their business. That is, there is a model in existence that a certain price point for the PSN would bring in more money than they potentially lose due to consumers gravitating to the free option. This essneitally represent real money lost if those projections are taken to be true. Not that I am saying Sony is planning to implement a fee, but I find it unlikely they have not considered it at some point.

Never trust a company spokesmon when they claim to be losing money. Corporations exist to suck you dry of all money. There is no warm fuzziness about them. They do not care about you the consumer. They care about your wallet. If they were losing anything resembling a significant amount of money then the PSN would have had a massive over-haul long ago. Especially when it is crystal clear that people will pay thanks to XBL.

Kind of goes back to Google's decision to buy youtube.com.  I have heard a few alarming statements about youtube and it costing google roughly 1 million in bandwidth a day.  That is an extreamly high recurring cost and maybe its current business model does not make enough money on it to offset that cost, but everyone realizes the siginficance of youtube in our world today so they would be stupid to let it go just cause its not profitable now.

Same thing with console makers and taking a loss at first in order to sell software at a profit.  I'd think that Sony is doing ok with PSN, its a great service to attract people who havent decided on a console yet.  It's an easy marketing bullet point that can differentiate between their closest competitor.  That said, the model will most likely change.  I think they are saving up some "features" to offer to PSN members that want more out of the service.  Maybe its discounted rentals, cross game voice chat, or something we havent heard of, but I wouldnt be suprised if they offer a different service that requires a subscription fee.  We've all heard the rumors, but we havent seen anything substantial yet.  I think their only real mistake would be if they took away services that are currently free (ie multiplayer support), and started charging.  I think the balance would lie in building a big enough package of compelling features that make people feel its worth while.  Once they have that design, we'll see an announcement.