Apple traditionally prices its gadgets higher than the competition and enjoys generous margins on each that it sells. That’s not true of the new Apple TV. What’s Steve Jobs thinking?
Research firm iSuppli ran a new teardown analysis on the Apple TV, concluding that it costs Apple about $208 to build each 40-gig set-top box. (Via Gizmodo.) At the old $299 retail price, that’s a nice gross profit around $91 per box. But at the Apple TV’s new retail price, $229, the company gets just $21 gross profit per unit. Add on the price of overhead, marketing, etc., and Apple is breaking even at best.
Computerworld (via Valleywag) takes this to mean that Apple is “subsidizing” the Apple TV with income from digital movie rentals. “I would guess that [Apple’s take] is about $1 – $2 per movie,” Seth Weintraub writes. “At that rate, it would only take Apple 35 – 70 movie rentals … to recoup the cost of the Apple TV price reduction.” He adds: “This is similar to the iPhone, whose revenue is also derived from outside sources (the Mobile carriers…).”
This sounds right to us. The only difference: When Apple sells an iPhone, it’s automatically locking in two years’ worth of service fees from carrier partner AT&T, at an estimated $15 per month. With an Apple TV, there’s zero guaranteed revenue.
But if Apple were able to catch up to Netflix’s DVD subscription business, which churns through 1.6 million movies a day, you can see the makings of a real business: At $2 a movie, Apple would be grossing more than a $1 billion a year from movie rentals. That alone isn’t enough for Apple to subsidise its gadget. But it’s a good start.
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