The short version
- Console makers often sell hardware for less than it costs to build and ship. The goal is to get a box under your TV.
- They make the money back on store cuts, first-party games, subscriptions and accessories.
- Microsoft says it has never made a profit selling an Xbox. Sony sold the PS5 at a loss at launch.
- Rising chip and memory costs are why next-gen prices like $1,000+ (about ₹95,000 converted) are being reported.
How the model works
It's the printer-and-ink idea. A printer is cheap because the company earns on ink for years. Economists call it a loss leader: a product sold below cost to win customers who then spend more elsewhere.
A console works the same way. Each one sold is a customer who will buy games, pay for an online subscription and maybe grab a second controller. Selling cheap also wins market share, and market share is what persuades publishers to make games for your platform in the first place.
Image: Zerocade
The biggest earner is the store. The platform holder takes a cut, usually around 30%, of every digital game sold on it, including games from other publishers. On a ₹4,999 game, that's roughly ₹1,500 going to Sony or Microsoft without them making anything. Add Game Pass or PS Plus fees, first-party hits and accessories, and one console can earn back its loss many times over its life.
What the companies have said
Image: Zerocade
- Microsoft: At the 2021 Epic v Apple trial, Xbox executive Lori Wright was asked about console margins. Her answer: "We sell the consoles at a loss." She said Microsoft has never profited from selling an Xbox.
- Xbox Series X|S: In 2022, Phil Spencer told CNBC that Microsoft lost roughly $100 to $200 on each console it sold.
- PS5: Sony said in August 2021 that the $499 disc PS5 was "no longer sold at a loss". The cheaper Digital Edition still was at that point.
- Older generations: a 2005 teardown estimate put the cost of building an Xbox 360 well above its retail price, and the PS3 was famously expensive to make at launch. Both were sold below cost.
Nintendo is the usual exception. It tends to price hardware to make a profit from the start, which is one reason its consoles have often used older, cheaper chips.
Why the model is under pressure
Selling at a loss only works if the loss is small enough to recover, and if it shrinks over time. In past generations, it did. Chips moved to smaller, cheaper manufacturing, memory got cheaper, and console makers could cut prices or release slimmer models a few years in.
This generation broke that pattern. AI demand has pushed up the price of memory and advanced chips, and the companies that make them now sell to data centres first. Consoles have been getting price hikes instead of cuts. In India, the PS5 disc model is now ₹69,990, more than it cost at launch.
Our DDR4 vs DDR5 explainer shows how far memory prices have moved this year, and the RTX 5090 supply story shows the same pull on graphics chips.
What it means for the next generation
That's why recent reports matter. Fortune says the next Xbox could cost $1,200 to $1,800 without a subsidy, and a leaker says the PS6 could pass $1,000 because its memory and storage alone cost Sony over $680.
On paper, the real question for both is how big a loss each company is willing to take at launch. A $200 loss per console, the upper end of what Spencer described, is manageable when you sell tens of millions and earn it back on the store. A $600 loss is a much harder bet.
For Indian buyers, the subsidy matters even more. Import duties and GST stack on top of the US price, so every $100 Sony or Microsoft absorbs saves you roughly ₹10,000 or more at the shop. Watch the launch prices, because they'll tell you how much each company still believes in the loss-leader model.
