Copyright law.
Is it because each region has different laws?
If so how is a PS3 region free and not a Wii if they have to follow the same laws? I guess they could each have different agreements with publishers.
Seriously curious as region locking sounds like a terrible business decision to me and I'm always fascinated by the business world of video games.
If Nintendo had never released Xenoblade here they still would have made something off the legit, paid for PAL copy that I have without incurring the costs of releasing a localized NA version. In this case, which I realize isn't the only case, they benefited from a no risk - reward situation.
Copyright law is such an impossibly difficult thing to completely understand.
Every country has their own copyright laws, and some have none at all, like China (which is why they manage to rip off everything and suffer zero preoccupations for it). On top of that, a copyright held in Japan may not be enforceable here in the US. This means that the owner of said rights is afforded little to no protection from their IP being stolen/reproduced/etc.
It's definitely not so much about the hardware developers, as you noted, but rather about developers and publishers. They're the ones that stand to lose something.
I'm
sure there are other reasons for region lockouts, but copyright is one thing that I know has always been a large component of it. In fact, Sega sued/nearly sued eBay about 11-12 years ago when the DC launched in order to prevent people in the US from buying and selling Japanese games. There was a good year or two that you simply could NOT import via eBay. IIRC, you STILL can't sell mod chips on eBay despite their current quasi-legality. I have a friend who's a copyright attorney and even he sometimes gives me a blank stare and scratches his head when I pick his brain about the subject. It's also an ever changing area. What was true years or even months ago may not hold true today. The web has COMPLETELY turned copyright law on its head and these poor attorneys are always scrambling to make sense of the new legislation and use it effectively. Would make me absolutely nuts :/