If you lose money on every single transaction, then volume doesn't help you much - unless you can sustain that push long enough to drive the competition out of your space, of course. In the video game business, it's becoming increasingly clear that the PS3 isn't doing that:

On Wednesday, Sony reported that losses for the January-March quarter widened from the same period a year ago to 67.6 billion yen (563 million) in red ink, largely on launch costs for the PS3, or PlayStation 3, which went on sale in November in Japan and the U.S., and in March in Europe.

The funny thing is this: they are selling plenty of units, even with the high costs - more than I would have thought, honestly:

Sony shipped 5.5 million PS3 machines in the fiscal year through March 31, fewer than the 6 million the company had targeted. Nintendo shipped 5.84 million Wii machines worldwide during the same period.

So contrary to the conventional wisdom, they aren't doing so badly in volume terms - the problem is in the price point and design. Nintendo is demonstrating that you can do just fine without high end graphics (and with units that actually sell for a profit all by themselves) - while Sony is hemorrhaging money. They have other problems at Sony too - problems which stem, IMHO, from the fact that the hardware division and the software division (music/movies) are often at odds in terms of how to serve consumers.

Meanwhile, Sony seems to think that they'll break even in games next year:

Earlier this year, Yuhara had said Sony plans to break even in fiscal 2007 in the gaming business. On Thursday, he said he hoped Sony's game operations will turn a profit by fiscal 2008.

Based on those losses, I'm not sure how. The PS3 must still be very, very expensive to manufacture. To make up that deficit, they'll have to sell an astonishing number of games. Now - if Nintendo could just get sufficient stock of Wiis in the retail channel, I'd buy one...

Technorati Tags: games, PS3, Wii