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Sony last time it was announced makes $7 profit every PS2 sold. So, taking that into account. The PS2 sells what 11k - 60k a week in Japan. so take 11k time $7 equals $77 profit.

It's all very well discussing unit sales, projections and price points, but in truth the seventh generation of video game consoles has already been decided.

Microsoft and Sony are massive corporations with over forty billion dollars of annal revenue and massive profits. In contrast, however, their game divisions each show significant and sustained losses - Microsoft ever since it entered the console market and Sony since the PS3 started to lose them $200 on each one sold and the PSP was a virtual flop against the DS.

This means that if it weren't for their other business, both companies would be dead and bankrupt already.

Nintendo, on the other hand, has always turned a large profit and has had their share value (and therefore how much money the market expects them to make) triple in 18 months due to the DS and Wii.

Result: If the market was fair and Sony and Microsoft couldn't afford to lose billions of dollars every year just to stay in the game market, Nintendo would be the only major competitor left.

I believe if sales continue their current trends Sony and Microsoft will give up and pull out of the console market altogether. I see no financial reason to stay in it for either company.

1) Yes, Sony and Microsoft are in the videogame business for more reasons than just making money from videogames, but they have to understand that the primarly selling point for a console are videogames. It doesn't look like that they will be making money from videogames this generation and they will probably also fail to make profits off of the other things they offer for their consoles (Bluray, DLC), because first and foremost you have to sell your machine as videogame system to reach massmarket penetration.

2) The PS2 made a cumulative profit of $2.3 billion for Sony's game division. The PS3 lost close to $2 billion in its first year and Sony projects another $500 million loss for this fiscal year. Everything the PS2 made in profits is already lost. The PS3 is a huge gamble, if Bluray doesn't become the successor of the DVD, Sony will not only have lost their reputation in the videogames business, they will also lose money on yet another failed new format they wanted to push in people's homes (Betamax, MiniDisc, UMD).

3) As of now, Microsoft's H&E division hasn't made a single cent of profit. In fact, they lost about $5.5 billion on the Xbox line. The Xbox exists to stop the Playstation line from becoming a convergence box for the living room which would cut into Microsoft's main business, Windows.

4) Nintendo has about $5-7 billion cash reserves, they could afford to make an Xbox like failure and would still be in the business. The Wii clearly shows that it isn't necessary to sell hardware at a loss in this business if you have a great product. Lossleading is a risky business, if you don't become dominant, you will lose billions (see Xbox, 360, PS3). Nintendo knows how to make money in this business, Sony and Microsoft obviously don't know.

5) Whether a company can or cannot afford to lose money isn't relevant. The strategies of Sony and Microsoft are stupid, they are betting the farm on their current consoles and therefore become desperate to have a huge hit. There's a reason why Nintendo invested in rehashed (but clearly improved) GC technology - graphics are perceived as good enough already by the majority of consumers. There's a reason why Nintendo didn't invest in an online network like Live - it simply can't be a profitable business (Microsoft is charging a fee and still losing money on it).

6) Stop believing that Microsoft and Sony are running their videogames divisions at a loss because they care for their customers. They are not charity companies. In fact they care far less about the videogame market as Nintendo. Nintendo has to care, because it's their only business. Microsoft and Sony give a rats ass.

7) If Sony won't be able to make money in this business anymore (which is likely seeing how the PS3 and PSP are doing) and doesn't see a possibility to make money in the future they will leave the market. If Sony leaves, Microsoft's primary reason to enter the market has gone. If the Xbox line hasn't become a profitable business (which was their secondary reason to enter the market) by then, Microsoft will leave to. Business is about money.