After start up costs (starting from scratch with the original Xbox was certainly more expensive than iterating to the current version), in general, consoles are

After start up costs (starting from scratch with the original Xbox was certainly more expensive than iterating to the current version), in general, consoles are loss leaders and you make up for them in rights fees from games (console makers traditionally do much better than breaking even here). Online services, like Xbox live gold, is another revenue stream. MS probably gets some value from more people getting Microsoft accounts, too.