First Proof Apple Making Near Zero on AppleTV (And Big Bucks on iTunes)
That sweet $70 price chop Steve announced for the Apple TV had to come from somewhere (a question smartly raised by CW) and we know the only thing Apple guards more than closely than its secrets is its bottom line.
Context & Ripple Effects
Business Week's June 2007 component-cost teardown already had the Apple TV selling close to its $299 bill of materials, so when Steve Jobs chopped $70 off the price this month, the headroom was gone — Gizmodo's arithmetic puts the box at roughly zero hardware margin. CW gets credit for asking the right question: where does a company this protective of its bottom line find that money?
First-order effects
- The Apple TV stops being a product Apple profits on directly — every unit sold at $229 now exists to put an iTunes front end in the living room, making media sales, not the hardware, the payoff.
Second-order effects
- Studios and labels selling through iTunes gain a cheaper, wider-installed endpoint for rentals and purchases, deepening their dependence on Apple's storefront terms even as the box itself earns Apple nothing.
Third-order effects
- If Apple is willing to price living-room hardware at cost while it posts record quarters — $9.6 billion in fiscal Q1 2008 — the market reorganizes around whoever owns the content store rather than whoever builds the box, with the iPod touch's $20 paid-upgrade precedent showing how far Apple will push accounting-driven margin discipline elsewhere.
The trend: The living room is shifting from a hardware-margin business to a content-store business, with Apple pricing the Apple TV at cost to make iTunes the real product.