NES, GB, GBA, SNES, N64, GC were all sold at a loss. Sony copied Nintendo's scheme with ALL of their consoles as did MS.
Nintendo basically invented the model everyone operates. The theory is that over time, the cost of producing the console falls as you re engineer it and make it more efficient etc.
MS had to dump the OG XBOX because they didn't factor this in because they didn't understand who the japanese worked and it was impossible to reduce their costs over time as Nvidea wouldn't reduce the cost of their gfx cards.
That's incorrect.
The Atari 2600 created an era where consoles had to be sold at a profit. Third parties like Activision emerged, and Atari couldn't stop them from making games for the system, nor could they earn money from those games, but more games being available pushed more hardware, which meant more hardware profit for Atari, so Atari didn't entirely hate having competition on their own system.
Nintendo invented the lockout chip, and charged third parties to get past it. Nintendo realized that software profits were bigger than hardware profits, so they brought the "razor blade" model to videogames and sold the NES at a
break-even price. This meant that any console which did not have a lockout chip was unable to compete with Nintendo on price.
The SNES and Genesis were also break-even consoles that earned money from games. That's why Sega made so much money with the Genesis, their only real success.
When Sony arrived on the scene, they observed that you can make ~$10 per-game in software royalties, and that the "attach rate" or "tie ratio" on any moderately successful console was easily more than 5:1. That roughly means you can make more than $50 in software sales for every unit of hardware you sell. So Sony concluded that an aggressive console could sell for at least $50 below-cost. Sony took Nintendo's idea to the next level.
Nintendo shouted "Madness!" and stuck with carts instead of CDs in the N64, that way they could compete with the PSX on hardware price (a CD drive would've added at least $50 to the price of the N64). The PSX sold massive numbers, and had an attach rate somewhere between 10:1 and 15:1. Sony lost $50 per-unit on hardware, but they made between $100-150 in software for every unit sold, so they were laughing. Sega tried to compete with Sony's pricing, but didn't sell as much as Sony (neither games nor hardware).
The GameCube was again sold at a break-even price. It apparently never exceeded being sold at a $9 loss, and spent most of the time in the black, even when it was priced at $99, thanks to dropping manufacturing costs (something GameCube was very much designed to do). The PS2 was again a below-cost console, and it again sold massive numbers with something like a 15:1 attach rate. Sony was rolling in money, but "no risk + Nintendo loyalists" meant that Nintendo could survive the console war indefinitely.
The Wii wasn't a break even console, Iwata pushed it to
earn $50-100 per-unit, and it's attach rate was terrible because of all the casuals bringing down the average, but still, it was a massive victory. Who cares if the casual gamer doesn't contribute to the attach rate if you pocketed an extra $100 when you sold them the system?
Sony on the other hand got over-aggressive and sold the PS3 at a reckless $100 loss, expecting a 15:1 attach rate to save them, and that never materialized. Xbox 360 (priced similarly aggressively) had a better attach rate than PS3.
The 3DS hardware, like the Wii, was priced to earn a massive profit, but when it became clear that it wasn't selling, Iwata slashed a massive $100 from it's price, pushing it into a below-cost position. An act which saved the 3DS, but removed it as a support pillar for Nintendo to rely on.
The WiiU's controller is ridiculously expensive, so Iwata launched the console at a loss. It's dead in the water, so people are calling for it to get a $100 price cut, but the WiiU's attach rate is currently a pathetic 4:1, and can nowhere near justify losing $150 per-unit, which would be a failure of proportions so epic it would make the PS3 blush. Nevermind the fact that this is Nintendo we're talking about, and they're already terrified of a $50 per-unit loss.
Edit: The GameCube was a failure. That ship sank. But the GameCube knew how to swim, so it's failure, while depressing, didn't really hurt all that much. The WiiU is sinking faster than the GameCube, and it can't swim. The only way the WiiU can survive is if it wins. But the only way it can win is for it to drink poison. That's not a good strategic position.
