Where do profits come from in the traditional business model of videogame consoles?

Where do profits come from in the traditional business model of videogame consoles? What is the economic logic of this profit model?

What are the new pricing models made possible by cloud gaming and what will be their impact on the traditional pricing model?

Should the console makers:
a) embrace cloud gaming (aggressively roll out cloud gaming features, including streaming), or
b) stay the course with console gaming (adopt a “slow and cautious approach”, with minimal adoption of cloud gaming features)?
Explain your answer.

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