How can everything be profitable when overall Sony Entertainment has been posting losses for three years in a row?

You're just making things up.

The 1st party software is not profitable. Sony games have huge budgets and never sell well since the PSP/PS3 era. Also, when MS is selling away a lot of their first party you can suspect that Sony doesnt make profit on their 1st party either (but it still might be worth it overall, because 1st party games sell consoles, which in turn moves third party software). The little money Sony Entertainment makes comes from the $10 license fees from third party. 

Explain yourself???

Because both Naughty Dogg and Inzomniac have stated that Uncharted 1 and the first PS3 Ratchet did well...
Do you think every game on PS3 has a huge budget JUST BECAUSE it is on PS3???

Ratchet and Clank Future: Tools of Destruction
Resistance1
Resistance2
Ratchet and Clank Future: Quest for Booty

Are all running on the same engine with improvements between each games release... This alone saves tons of cash. If the first Ratchet's sales were good, how well do you think every game after did?

No idea. But it would be fact to state that it would cost less to transport and store a vastly reduced console (and vastly reduced box size) which would weigh significantly less in addition to having significantly less volume on a per unit basis.

It would also require less shelf space to hold more units at retail outlets.

These things all contribute to cost reduction as well as production reduction costs.

SCE WWS has been profitable for a long time. The PS3, however, is still selling at a loss. Can you name any Sony games released recently which could feasibly have lost money?

wow awesome news. this is true?.

It might be. But it's currently 4 threads for, and one thread against, so by that logic, yes it's true.

However, by following more logical logic, the one thread against actually has some sort of evidence that it's fake...apparently. I'm not listening to an hour long conference call to prove them right (or wrong).

What I was trying to say is that it doesn't make sense, and SCE does most likely make a profit. What recent games do you think didn't make a profit. I know there are a few like Lair, EoJ and Folklore, but the vast majority sell well

It's simple. We actually have a reference point to compare to.

Take third party games in general - we know that overall, they have a very hard time to make a profit. Not only do we know that 4 out of 5 games are losing money, but we also know that publishers on average don't make more than 10% in profit - if even that.
I'm sure you've read the news about financial reports - most of the publishers, EA, Sqauer Enix, THQ, Take Two, EIDOS, Sega, Atari Capcom, Codemasters, are losing money or making small profits. Year after year.

What can we deduct from this? That in general proifit margins are small.

So how on earth can exclusive games who are released on a limited market be the ones making money? (Im not talking about Nintendo here, theyre the exception to the rule)

We all can see that Sony games are very well made, and quality in general means higher costs.

Take Infamous vs Prototipe for example.

Infamous is obviously more expensive, you can see it had a higher budget than Prototipe. But who will sell most?

Prototipe of course. Infamouse will end at 1.2 million. Prototipe at 800K PS3 and 1.3 mill X360 = 2.1 mill.

2.1 mill vs 1.2 mill. So if we know that games like Prototipe in general make only 10% in profit (on average), we can deduct that the corresponding exclusive games on PS3 lose money. It's mathematically impossible that a 1.2 mill seller can make money, if a cheaper 2.1 mill seller only made 10% money (even if we account for the $10 per copy license fee).

Just do the math and you'll find out.

Notice though that there are other positive effects with having a strong 1st party - it's a strong selling point in the console war, and thus possibly profitable overall if we include the second hand sales 1st party games generate.

i find it hard to believe it only costs 200 bucks to make a ps3 now..

All of them except MGS4 (and that is maybe not even published by Sony but Konami?).

Well, LBP i'd say indeed also made a profit.