Starting Over With Wii
It has been going on for several years now and will continue to be a thing that will not end. Manufacturerss develop and sell game consoles as loss leaders so that they will be able to profit from larger margins on the software at a later time. Sony spent hundred and millions of dollars to help develop the Cell processor for the PS3 from the bottom up. Unfortunately they were unaware just how much they would be spending.
By contrast, for the Wii, Nintendo bought a much cheaper central processor off the shelf. The key chips that go into the now-famous “Wiimote” cost about £1.25 apiece. Again, they were bought in from outside. The result: Nintendo is making a profit on every Wii sold, something in the region of $20 to $30 seems to be a fair guess. Sony, meanwhile, is losing as much as $200 on every PS3.
The cost differentials spill into software: developers can make as many as four Wii titles for the same price as one PS3 game, says one estimate. If Nintendo continues to command the attention of third-party developers in the way it is at the moment, the resulting library of games can only reinforce the appeal of its hardware, in turn creating a market for its own software. Yes, the Wii could yet have a far shorter lifespan than the PS3. But the real fear for Sony is that Nintendo is not only reinventing gameplay with cute controllers, but that it is mangling the accepted economics of its industry.