If you allow for distribution margin, Apple can’t be making anything on the 40gb AppleTV sold for $229, if iSuppli’s BOM estimate of $208 is accurate.
There’s nothing wrong with a razor- and razor blade cross subsidy. After all, that’s what videogame console makers have done for years — giving away consoles to make it up with royalties on the game. Once upon a time, you could get an actual razor blade handle free, too.
The problem, of course, is that Apple’s subsidy has historically gone the other way — iPods make money and the iTunes Store does not. So a subsidized AppleTV and break-even store is going to wipe out margins.
I’m guessing that this is a fight to the death for control of the living room: Xbox 360, Sony PS3, Amazon Unbox, the various TV network sites, plus substitution effects for short clips by GooTube. So, like a good Japanese company, Apple is buying long-term market share at the expense of short-term profits.
Nobody’s buying AppleTVs, so it’s not like the subsidy will have a material impact on the bottom line. On the other hand, the old AppleTV made a cheap OS X 10.4 server. Someday they’ll update the hacks so that they can turn the 2008 AppleTV into a cheap 10.5 box.
The new product allows movies, TV shows, YouTube, music and podcasts. I guess I’ll have to buy one to see if it supports the radio stations preloaded in iTunes — like my “hometown” favorite, KSBR. Or I could install the Streamer MP3 radio station hack.
Still, I don’t get the business model. The product still doesn’t do timeshifting, which is the number one usage of a digital settop box.