Game sales produce greater profit in the long term than system sales if I recall.
Nintendo sells its hardware for a profit from the beginning. It's been two and a half years since the Wii launch and the price still hasn't fallen. They're most assuredly making hand over fist on every unit sold at this point. I don't recall any system going this long without a price drop from its launch. Plus the DSi just came with a $40 USD price
hike that's probably almost entirely profit.
On the contrary, Sony pioneered the "loss leader" model in its quest to use "cutting edge" tech as a selling point, and used game licensing fees to make the money back. Microsoft copied this model. So far it's only proven to work when they're dominating the industry; Sony's still bleeding money like crazy thanks to the PS3, and at this rate, it's going to take a long time for Microsoft's game division to get into the black.
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