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Speaking at the Games Convention Developers Conference this afternoon, industry veteran Dave Perry (most known for his studio Shiny Entertainment and its games Enter the Matrix and Earthworm Jim), gave an overview of the games industry as he sees it today. When discussing the current console race, he brought up some interesting statistics that he obtained from research firm DFC Intelligence. According to Perry, Sony has lost more money selling PlayStation 3s than it made selling PlayStation 2s during the entire five years of its peak. So basically, all of the money Sony made on hardware last generation -- it's already spent more to sell the PS3 at a loss so far. Some estimates put that loss at $3 billion.

Of course, videogame manufacturers typically follow the Gillette razor blade model and sell their hardware at a loss (at least for the first few years) only to recoup the costs on software. (Nintendo's Wii is an exception -- it's estimated that even out of the gate Nintendo has already been making $40 per console). But Sony's PS2, the best selling videogame console of all time, was making a healthy profit on each unit sold as of a few years ago. Seemingly all of that went to fund the PS3 hardware that Sony has been selling -- and for the foreseeable future will continue to sell -- at a loss. (Some estimates at one point put it at $260 per console, though manufacturing costs have steadily come down in the past year).

Perry didn't use this point to take any particular stance on this console race -- though he did state that DFC Intelligence puts the Wii as the victor this generation, with the PS3 coming in first in terms of overall software sales -- but he did want to point out the extreme investment Sony is making in its hardware this generation. He (and DFC) predict Sony will extend this generation even longer than the PS2's because of this (making Sony's claims of 10-year life cycle a real possibility). Of course, the Xbox 360, especially considering its $1 billion in replacement costs for faulty hardware, has likely cost Microsoft just as much, if not more. But Microsoft's entire foray into the videogame business has been a costly multi-billion dollar investment (Microsoft lost $4 billion on its original Xbox alone), whereas Sony's games division has only recently been forced to spend so heavily to hold on to its status in the games market (and to force the adoption of an HD media standard).

Putting things in perspective, though, Sony did lose quite a bit on PS2 hardware in its first year or so -- likely not $3 billion, but still. If things continue to move in Sony's favor and the PS3 manages to have a healthy 10-year life cycle (it's possible...the 8-year old PS2 managed to outsell both the Xbox 360 and the PS3 last year), it's still possible, when all is said and done, that the company can break even on hardware costs this generation. Or maybe eventually even make a profit. At this rate it'd better; who knows what the PlayStation 4 could end up costing the company.

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http://www.1up.com/do/newsStory?cId=3169439