What Apple TV Costs to Make
Analyzing and pricing out the components of Apple's new set-top video box reveal uncharacteristically slim profits — When Apple CEO Steve Jobs called Apple TV a "hobby," he wasn't kidding. — By typical Apple standards, the new set-top video box …
Context & Ripple Effects
Steve Jobs has publicly filed Apple TV under 'hobby' — his own word for the set-top box — and this Business Week component teardown shows the label was more than modesty. Pricing out the parts yields margins far below what Apple typically commands on the Mac and iPod lines.
That makes Apple TV a genuine anomaly inside Apple's 2007 lineup, arriving alongside a MacBook Pro refresh whose LED-backlit displays and Core 2 Duo updates sit firmly in the company's usual high-margin playbook. A hardware maker famous for premium pricing shipping a box at slim profit is the story worth watching.
First-order effects
- Apple is selling its new set-top box at close to component cost, so early buyers get Apple-branded hardware at an effective discount to the company's normal pricing power.
- The 'hobby' framing gives Apple cover: a product with uncharacteristically thin margins carries no pressure to hit iPod-style volume or profitability targets.
Second-order effects
- With no hardware margin to defend, Apple can price Apple TV to win placement in the living room against consoles and cable set-top boxes, shifting the competitive question from device price to access to video content.
- Rivals reading the same teardown learn that Apple will not compete on set-top hardware economics, forcing them to differentiate on content deals and distribution rather than expecting an Apple price umbrella.
Third-order effects
- If the pattern holds, the living room becomes an attach market where the box is priced near cost and the durable revenue sits in media sales and subscriptions — a structural break from hardware-margin business models across consumer electronics.
- Published component-level pricing also raises the transparency bar: once teardown analysts can verify who profits on a device, 'hobby' products become legible experiments rather than marketing noise.
The trend: Living-room hardware is drifting toward near-cost pricing in which profit migrates from the device itself to content and services, with Apple TV as an early, self-labeled experiment in that shift.