The whole companies losing money per system sold

[Cobra]

This has been bugging me for a little bit, so here is my quick rundown.
Companies don't make systems for people to be able to play their video games on out of the kindness of their heart. They need to make money, people need to get paid, and they need to pay to make these things in the 1st place, and this money dose come from somewhere, and it's you the buyer.

I don't care what companies claim it, they are never losing money by selling their products. These things are mass produced in a big way. They spend so much money to make lets say 10,000,000 units. This dose cost them a lot, but it's all done in bulk. They are far cheaper to make as it's all done it bulk than what you are paying for it. Every system sold is a little of their money back, and by around lets say 600,000 units sold they are then caught up on costs and every unit onwards is pure profit.

The only way they would be actually losing money for selling a PS3 to anyone is if they made it especially for the individual customer, which we know is not the case. It's just a marketing tactic to claim they are losing out, believe me. It works, it makes people feel like they are actually getting a bargain for something that costs a bundle.

[OatBob]

Sorta....  This process is known as subsidized sales.  The companies know the cost of manufacturing, but are willing to sell the hardware at a loss to build a larger userbase.  The actual sale of the console brings some money back, which is better than the unit sitting on a warehouse shelf.  The money is made back through each licensed software title sold for the system.  Another big cost of pushing out a new console is the initial R&D, which often takes the first year or two to rebuild funds.

The only way they could possibly lose money on console sales is if the consumer only purchases the console and no games, or maybe only one game.  Still, new consoles have always been a hell of a deal when compared to a PC with similar capabilities.

Ultimately its like a cellular phone contract.  The phone is "free" but they get their money back by selling you service for two or more years, enforced by a contract.

[Izret101]

Good analogy to the cell phone.

While technically the hardware is sold at a loss they know(or at least hope) they will make the money back up via software, and other venues(internet access, memberships, extra downloads, etc).

If your a big enough corporation it doesn't bother you to take losses in some places because you can more than make up for it in others.

[shaggy]

Sorta....  This process is known as subsidized sales.  The companies know the cost of manufacturing, but are willing to sell the hardware at a loss to build a larger userbase.  The actual sale of the console brings some money back, which is better than the unit sitting on a warehouse shelf.  The money is made back through each licensed software title sold for the system.  Another big cost of pushing out a new console is the initial R&D, which often takes the first year or two to rebuild funds.

The only way they could possibly lose money on console sales is if the consumer only purchases the console and no games, or maybe only one game.  Still, new consoles have always been a hell of a deal when compared to a PC with similar capabilities.

Ultimately its like a cellular phone contract.  The phone is "free" but they get their money back by selling you service for two or more years, enforced by a contract.

Exactly what Oatbob said.  They do lose money when selling hardware but they make it up with games and there licenses.  In the case of Nintendo with the Wii that is one of the few cases I know where they are actually making money with each console they sell.

[Marriott_Guy]

Oatbob & shaggy are dead on in this.  It is extremely rare that a console has actually made money for a respective company during the first few years.  The R&D costs are extravagant and have actually lead to the demise of several companies after releasing consoles that ended up being a failure (Commodore being one of the more noteworthy companies that went bankrupt after failed console(s) releases).

[Cobra]

I honestly believe the production costs of the hardware are over exaggerated. I mean we are talking about electronics assembled in some place like China or Indonesia. They pop these things out as cheap as possible and as many as possible cutting every corner imaginable. From not addressing overheating issues that fry a system (360) to striping a component but increasing the cost as well when selling it to other parts of the world (PS3).

Judging by the responses I would say I'm probably wrong, but that's what I believe.

I mean if they lose money for each system, why not sell them all for $50, take over a 90% market share and have every developer make games for them? Or even give the systems away under a contract stating the buyer has to buy X number of games a year like CD catalogue stores do?

Edit:
I should just quickly point out that I'm not dismissing the huge costs of R&D and marketing. I know this will take a long time to remove. But I mean the actual costs of the hardware itself. I don't believe these companies are losing money for this part alone by itself although the way they word that they lose money per system sold would imply otherwise.

[cyberfluxor]

I don't like how so many gamers are ready to jump on the "PC costs more" bandwagon. I built this PC 3.5 years ago and it was quite superior to the Xbox and the actual hardware cost me $450. I bought everything new and at bargin discounts from overstocked online retailers and over that time I've only pumped a little under $300 in upgrades for a newer video card and more memory, the funny thing is it still performs really well with the newest PC titles. I have yet to see a single Xbox360 or PS3 game really wow me and look as though it out performs my computer so the current generation of consoles have been a huge letdown for me thus far. They need to figure out their architecture sooner than later because I'll begin building a new system in 2009 and unless some insane games are produced for these super consoles then I'm just not impressed.

And as for older consoles, there were some nice powerhouse machines in the 90's but even so they never truely met arcade standards omitting the Neo-Geo stuff. Not to mention from my perspective a lot of the "killer apps" back then were ports from the PC, MAC or arcade. Computer hardware is a new world today though from what it was in the 80's and 90's technological and price wise.

[Nukie]

I think I'd have to agree with Cobra mostly.  On the system itself, I don't think they lose anything.  When you factor in R&D and marketing and all of that, they probably do at first.