ThunderTitan wrote: Pardon me for not starting a whole lecture on economic theory. And i'm pretty sure that you either make a profit or you don't. Unless ur Enron.
It has nothing to do with "economic theory". You make a statement like "Microsoft takes a loss because it can make up for the loss with revenues from other areas." Then you make a statement like "Nintendo actually makes profits," thereby implying that Nintendo is the better company and that it will continue to compete, and additionally that Microsoft is just lazy. While it's true that Microsoft is able to take a loss because they have their fingers in other areas that make up for it, no company, especially one as shrewd and aggressive as Microsoft, willingly takes a loss in any area and accepts that just because they're making money elsewhere. Microsoft took losses on the original XBOXes because they were trying to carve a niche for themselves in an already saturated market. By offering their product at deficit prices, they attract new customers and establish a userbase for future products, and they hope to begin making profits from future consoles. Nintendo already has (had) a user base and so this was not necessary for them: however, Nintendo's laughable marketing department and inability to sign many of the big game manufacturers will cost them in the long run. It's long-term planning, not trying to make short term profits. Of course, the REASON that Microsoft (and Sony) is able to do this is, as you said, because they are so huge that they can absorb these losses without blinking an eye; a smaller company like Nintendo does not have that luxury, which is why, ultimately, Nintendo will go eventually extinct or will be bought out by someone else. It may take a while, because Nintendo is a video game mammoth and they have a lot of loyal fans (myself included), but Nintendo is consistently behind these days, despite very good hardware, because they just aren't putting the games on the shelves that Sony and Microsoft are. I have always bought Nintendos, but my next console will probably not be one. If it wasn't for the Zelda games, I probably wouldn't have bought the last two, either.
So there's more to it than "either you make a profit or you don't". It's about establishing your customer base so that you ensure your ability to make a profit in the future. The losses they are taking now is essentially an investment in the future of the company.
Incidentally, this is the same type of "future planning" that Ubisoft is doing with the Might and Magic franchise. And just with Microsoft/XBOX, it will pay dividends for the company.
And there I go again...