I thought PlayStation and XBoxes are subsidized by the Sony and Microsoft respectively as they make most of the money off the games and the network subscription. Nintendo is the only one that does not do that.
The PS3 was an extraordinarily expensive console, between the cell processor and the bluray drive (iirc this alone was several hundred dollars) and in early models also including a whole embedded ps2 implementation. So PS3 was sold at a loss, and not just a small one, but a heavy loss, like several hundred dollars per console, and even still the PS3 was derided for being far too expensive. It was a financial disaster for sony really, moves like ripping out the embedded ps2 make complete sense in that context, and they absolutely changed their business model for subsequent consoles.
Since then, consoles moved away from the exotic POWER/cell/etc custom hardware towards commodity x86 hardware based on integrated x86 APUs and haven't really been sold at a loss outside of maybe a small window at launch. PS5 moved into hardware profitability about 9 months after launch, microsoft said that the xbox series is still sold at a loss but I don't believe them because the xbox shouldn't be monumentally more expensive to build than the PS5. This is in the context of them trying to argue during the apple app store lawsuit that their lock-in on xbox store was different from the lock-in on the app store, so they have a financial incentive to make sure they "run a loss". It's either not much of a loss, or it's hollywood accounting and the money is going into their other pocket somewhere, like making the xbox division pay a parent holding company big licensing fees for on every console sold.
(again, I don't agree with the "finally" spin here, this article was roughly a year after launch and they may have been turning a profit for a while before disclosing it... the consoles themselves become profitable pretty quickly.)
However, this mindset that "consoles are sold at an initial loss" still persists. They're not, Sony has said they're selling the PS5 at a profit. Previous generations also reached profitability pretty quickly after launch as well. It's not 2005 anymore and the ps3 is gone. Slapping some GDDR5/GDDR6 on a semi-custom APU is dirt cheap.
Even during the launch window when they do lose money it's much smaller, nobody is losing a couple hundred dollars on each console anymore like on the PS3, that model is gone.
>The PS3 was an extraordinarily expensive console, between the cell processor and the bluray drive (iirc this alone was several hundred dollars)
Sony singlehandedly did a lot toward adoption of both DVD and Blu-ray, by the PS2 and PS3. The former's ability to play DVDs out of the box was a huge differentiator between it and GameCube/Xbox. My understanding is that PS3 at launch was not only the cheapest Blu-ray player available by several hundred dollars, but also excellent quality.
>It was a financial disaster for sony really, moves like ripping out the embedded ps2 make complete sense in that context
You can see that in the history of PS3 variants. It's normal for consoles to get a major redesign to cut costs late in their history, typically just before or after the successor is out. PS3 redesigns were a) many and b) very early in the console's lifetime, relatively speaking.
I'm fully willing to believe the Xbox/PS5 is sold at a loss today, the margins are so thin that tiny changes in component prices could have enormous implications on how much money each hardware unit delivers. Neither of these consoles are iPhones, they don't have profit margins of 40% (or probably any double-digit percentage, for that matter). Transitioning from esoteric hardware has pretty much nothing to do with it, anyways: the N64, Gamecube and Wii all used non-standard architectures while being ludicrously profitable. The only truly significant advantage to using x86 in a home console is how easy it is to port/develop titles for it, not a single current-gen console uses commodity hardware besides the Nintendo Switch (since the Tegra board is commercially attainable).
Nintendo definitely has a different business strategy than Sony or Microsoft.
Anyway—the cost of esoteric / more custom hardware got higher, that’s why the console manufacturers moved away from it. It would make sense to shove a lot of custom hardware in your 3D video game console in the mid-1990s, because there is simply no other way to do good real-time 3D, and you have SGI who’s willing to sell you chip designs.
As time went on, the approach of shoving big custom ASICs in your console starts to look worse and worse. Most of the CPU vendors that previously sold you all sorts of architectures like 68K, MIPS, POWER, Cell, etc. stop trying to compete with x86 hegemony. Meanwhile, you’re making life more difficult for console developers, because these custom designs are just so different from everything else on the market.
So you get the PS3, which is expensive to manufacture, and requires a lot of specialized work to program the SPEs (painful for developers). That’s two generations after the N64, and the world has changed.
I would also be less likely to call the Gamecube/Wii architecture exotic, at least compared to the PS3.
> I'm fully willing to believe the Xbox/PS5 is sold at a loss today,
Given that sony themselves have said they're turning a profit, this sounds like a personal exercise in making yourself believe a counterfactual. Some people are into that though, like the flat earth stuff, or the people who think finland exists. See what you can talk yourself into believing, even when the facts are right there ;)
Anyway, your personal belief or disbelief or willingness to believe or disbelieve is kinda irrelevant here, given that sony has said it themselves.
> Transitioning from esoteric hardware has pretty much nothing to do with it, anyways
Yeah actually commodity hardware does have a big role in bringing down costs. Semi-custom APUs are commodity hardware compared to the standards of esoteric Cell/POWER stuff, and actually some variants are available off-the-shelf as well (see Ryzen 4700S which is a PS5 APu with its gpu disabled).
The fact that some custom systems were sold at a profit in the past is kinda irrelevant. The era of "commodity x86 APU with a wide gpu and GDDR memory" is qualitatively different from the era of cell, power, MIPS (PS2), and worst of all sega saturn. Nobody does the "our console is actually eight different processors in a trenchcoat segmented in three busses that you have to juggle in realtime to keep everything fed" anymore like the sega saturn or cell. And no that's not an exaggeration Saturn had eight different processors that all needed to be juggled... two cpus, a sound controller, a sound processor, two video display processors, a coprocessor dedicated to managing loads off the cd-rom, and a system controller, all with different capabilities and bus access. Same for cell with its weird-ass processing element model with a ring and no access to system memory, etc. Those are far far different from the way x86 chips (even semi-custom APUs with different buses etc) are designed and the cognitive load was huge for developers.
Microsoft was ahead of the curve in the sense xbox was a semi-custom intel processor and an nvidia gpu, and xbox 360 was a semi-custom power processor and an ATI GPU, but Sony kept at it far too long. They bet everything on cell, the original idea was that cell could also be a gpu on the same chip but it performed so badly they had to add a commodity GPU at the last minute to try and fix it, but that left them with a cpu with a super-weird programming model and completely undocumented opaque hardware that was a nightmare even to bring up a hello world application on. Then they went "never again" and went commodity x86 SOC with everything integrated, alongside microsoft. That brought costs down a ton and fully aligned them with what was happening in the PC space.
The overall trend was clearly from the arcade/sega saturn era of highly custom, arcane architectures with lots of individual weird chips towards "CPU+GPU" arrangements and then finally just integrated APUs. And that's also the exact same time when they stopped selling things at a loss - the move towards integrated, semi-custom commodity architectures was a major part of that. Xbox One and PS4 and their refresh consoles and pro versions both moved into hardware profitability very quickly.
Also, both of your examples of profitable custom hardware were nintendo and they have always been notorious for going really cheap on their hardware. The few times they haven't, they've gotten burned.
This is my understanding as well. A big part of this was the HD-DVD v Bluray war around that time - Sony winning with Bluray would be worth millions of dollars more, so they were willing to take a loss to get a Bluray player in each person's home.
I bought my first XBox because the XBox One Series S was at one time one of the very best 4k Blu-ray players on the market at any price and also one of the less expensive ones. The fact it could also play games was merely a bonus to me at the time.
When it comes to network subscriptions, at the time of this article Playstation's online services were pretty much all free. It was one of the differentiators compared to Xbox's paid online services at the time.
That said though, the original PS3 hardware was definitely sold at a negative margin and wouldn't be profitable until four years into the console's life.
This is largely not true these days. The Switch sold at a loss at-launch, but slowly turned a tiny profit as shipping prices went down. The modern revisions (Switch Mini and OLED) are also priced similarly, so any profits they're making off the hardware itself is incredibly marginal.
