Did you know that companies don't make any money off console sales? In fact, companies almost always lose money from making and selling consoles. This might sound strange, but it is true and console manufacturers have confirmed this is true.

Why is this? How do companies make up for the loss in profit? This article will explain…

Why Companies Sell Consoles at a Loss

Microsoft recently revealed that it sells all of its Xbox consoles at a loss. This turned a few heads, but did not surprise any industry experts. Almost all game consoles are sold at a loss; it has been this way for several generations. PlayStation is in the same boat as Microsoft, and Nintendo is not too far behind.

Making and marketing game consoles is expensive. Companies invest a lot of time and money into these products; but sell them at prices that don't quite make up for all the costs. Why do companies do this? Why not price the consoles higher?

One reason is that if consoles are too expensive, people won’t buy them. Companies sell consoles in a competitive market. If a console is too expensive, people will probably buy a cheaper alternative or just not buy altogether.

Another, perhaps more important reason, is that if nobody buys a console, nobody will buy the games that were made to be played on that console. So, in order to facilitate game sales, it is actually in a company's interest to price its consoles low.

How Game Companies Make Profits

The truth is, consoles are not money makers for game companies. Games, subscriptions, and accessories are what make companies money. Consoles are simply the gateway to future sales, with manufacturers hoping to boost the coffers after selling you a console.

This is why companies are OK with pricing consoles so low; they have other money makers in store. These other money makers are how companies survive selling consoles at a loss; they do not rely on console sales alone.

Consoles are how companies get people onto their platform or service. If a company can get you to buy an Xbox, for example, you will buy Xbox products for years to come. Companies profit off the subsequent sales that follow a console sale.

It Is All Part of the Game Company's Plan

Upon closer inspection, it becomes clear that companies do this intentionally. They intentionally lose profits on console sales in order to facilitate other, more profitable sales. We sometimes call this pricing strategy a “loss leader”. Companies lead with a profit-losing sale, because they know more profitable sales will follow.

Nowadays, game consoles have tons of products and services attached to them. In addition to just games (some of which are console exclusives), game consoles offer online service subscriptions, game pass subscriptions, pro controllers, collectables, and other accessories.

These products and services are the true cash cows of game companies. The sales offerings attached to game consoles have evolved to include things like services and subscriptions, which are lucratively profitable. Read about what GaaS (Games as a Service) is and how it is affecting gaming. Originally, the only sales offerings attached to game consoles were things like games and controllers.

Gaming Brands Know What They're Doing (And Now You Do Too)

In short, game companies know what they are doing when they sell game consoles at a loss. But now, you do too. It is all part of their plan.

This knowledge may help you avoid unnecessary purchases. Now that you know what companies are trying to sell you, you can be more mindful of what you decide to buy.