They didn't lose money on the 360 (this past quarter anyway, clearly they did for a first few years of the device's life), they lost it on winding down the remnants of Zune and ramping up Windows Phone.
Also, while the 360 is still king of the consoles in terms of overall sales and is profitable, it is selling less quickly than before because this console generation is past its peak and is riding the downward slope on new units sold until the next hardware refreshes appear.
So the 360 is still a net positive, but less positive than recent past quarters and not positive enough to offset other losses.
However, 360 is only net positive now on a per quarter basis, which only counts current costs against current revenue. That doesn't count the initial investments made on R&D for the 360 or its predecessor. When you look at it from that perspective, "success" is much more difficult to claim.
Consoles are sold at a loss, so that more people will buy the console (licensing fees are proportional to the size of the audience/consumer base). Even the PS3 when it first came out at $600 was a loss leader; if i'm remembering right for the PS3, the cost of the hardware was something close to $1000.
Companies expect to make that money back through 1st party game sales and licensing fees from 3rd party developers for access to the sdk.
That doesn't explain the loss at all. The 360 is liely not costing more to build at this point in its lifecycle and all the games are actively paying their royalties.
The Xbox is profitable. The problem is the other businesses lumped in with them.
i don't disagree; i stupidly answered the question poster asked (how could microsoft not make a profit selling xboxes) instead of the question s/he meant to ask (why did the entire bu lose money).
They only recently started making money with every sale of a Xbox 360. Typically console makers sell their hardware at a loss to get it into as many hands as possible and then make money with software.
That is why Nintendo is taking such a bath this generation. People buy a Wii for the novelty and only get one or two games where Microsoft and Sony are much more about the games they have on their consoles.
Nintendo has always sold their hardware for profit. They made money on the Wii from day one.
They're taking a bath right now because the strength of the Yen versus USD removes a lot of their export profit. That, combined with the fact that they're ramping up production of the 3DS and the next console, is the reason they lost money.
Nintendo's taking a bath for multiple reasons but in regards to the wii (1) they rode it for too long and (2) all it did was games while the more robust hardware in the PS3 and Xbox made them more useful.
