Apple TV “margins are already uncharacteristically low for Apple, how can they cut $70 more? Apple is subsidizing the cost of the Apple TV hardware with movie rentals,” Seth Weintraub explains for Computerworld.
“In this model, Apple is taking ‘a bit off the top’ – as Tony Soprano would say – and adding it to the Apple TV’s bottom line. This is similar to the iPhone, whose revenue is also derived from outside sources (the Mobile carriers – AT&T, Tmobile, Orange and O2),” Weintraub writes.
“To be fair, Apple isn’t just subsidizing Apple TV hardware. They also have to pay for the infrastructure to distribute content and the bandwidth from Akamai – in which I believe they are still part-owners. That isn’t cheap. They also take a cut from the iTunes music and TV shows for this purpose,” Weintraub writes.
“Until Apple made the Apple TV a stand-alone device earlier this month, the accounting would be blurry because the content would have had to be purchased through iTunes, on a computer. Now, Apple can see how much content is being purchased directly by the devices and can account for the difference,” Weintraub writes.
“For its part, Apple is offering the consumer a fantastic deal by cutting the price of the hardware on the assumption (but not obligation like the iPhone) that consumers will use the device in a way that brings Apple more revenue. The movie rentals and TV shows are such a compelling value that I think Apple will have no trouble breaking even on the price drop,” Weintraub writes.
Full article here.
Apple changed their strategy with Apple TV because they had to. The thing was tanking… worse, it was dead in the water.
So why is the Apple TV still $378 (£199 for the 40gb) in the UK?
Mind you we still haven’t got bloody ringtones for the iPhone yet never mind movies on iTunes.
MKJJ,
So why is the Apple TV still $378 (£199 for the 40gb) in the UK?
You answered your own question. No movie rentals in the UK, yet. The presence of movie rentals in a market allows for reduced Apple TV hardware prices.
Apple isn’t subsidizing AppleTV with movie rentals. The prices for movie rentals won’t change if Apple raises or lowers the price for AppleTV. Just like iTunes prices for music don’t change when iPod prices change.
And what is he talking about AppleTV being a stand-alone device now? Sure, AppleTV can now access iTunes directly instead of needing a computer, and while that may allow Apple to better track whether AppleTV is generating downloads or a Mac/Windows PC, the end user still has to purchase through iTunes.
In the end, Apple’s price drop for AppleTV will result in more AppleTV sales, which results in more revenue due to movie rentals/purchases. Just like with the iPhone, where a lower price means more units sold which means more monthly subscription revenue.
Apple can make it successful if they add more format support.
period.
And what is he talking about AppleTV being a stand-alone device now?
This was mentioned in Steve’s keynote. AppleTV: no computer necessary = stand alone device.
“Apple changed their strategy with Apple TV because they had to. The thing was tanking… worse, it was dead in the water.”
You have numbers to back up your statement?
Yeah, I didn’t think so.
What gets me is the underlying attitude that people somehow are just dying to see Apple screw something up. I just don’t get it.
Of course Apple gets a cut of every movie rental. That’s how the iTunes Store works, Apple gets a cut for the services it renders, like cataloging, and bandwidth for delivery. You may consider accounting tricks that would add these revenues to the Apple TV project, but it doesn’t matter because it all goes to Apple’s bottom line eventually.
So why is the Apple TV still $378 (£199 for the 40gb) in the UK?
Because Apple has been slow to change the non-US prices to reflect the revaluation of the US$.
anyone have any information on when the update will be available?
i want to give this rental thing a whirl and if we like it, we’ll drop another $229 for one for the bedroom
cheers
MKJJ,
No ringtones?
Investigate Garageband a bit further.
The reason why the AppleTV price is dropping is because the AppleTV is going to be an important product for Apple moving forward. The movie download business is going to be huge.
I’m in when downloads come to the UK. I am quite happy to pay for a download and watch in HD-ish rather than go to my local blockbuster and have _no_ HD movies to rent. I don’t have to bother with an over priced BRD player either until they drop in price and their image quality gets better.
Hi I think the new interface and rentals for AppleTV are great. Also I love what Apple does. However =>I am really very discontented by the lack progress and support for AppleTV outside the US. No content (legally) accessible and still a 40 Gb AppleTV costs 299 euros in the Apple NL store (!!!), and the 160 Gb 399 euros. 1 euro is now 1.47 US$ and climbing, do the math! Do they WANT these things to stay on the self or what? Somebody in Apple Europe must have gone mental. Please Steve, send the this person to a clinic and fix this mess!
“Apple changed their strategy with Apple TV because they had to. The thing was tanking… worse, it was dead in the water.”
Hmmm. Me thinks this was the strategy all along. Why do you suppose it would be so easy to update the device on the fly if not for planning to do so all along?
In the course of a year, Apple has generated the software to do rentals, and the rental agreements w/ 12 studios. I’d say that’s prettydamn good.
“i want to give this rental thing a whirl and if we like it, we’ll drop another $229 for one for the bedroom”
I just re watched the keynote, and the way I see it, AppleTV rentals and iTune rentals are 2 different animals? from iTunes you can watch and swap between computers, iPods iPhones. But rentals from AppleTV can only be watched on your AppleTV,
The question will be if you rent on your appleTV id the living room, can you finish with the one in your bedroom?
The $229/329 price points are where Apple was selling refurbs prior to the price drop. I think Apple noticed price resistance at the higher price.
For my money, I’ll take a Mac mini with an HDMI jack and a real graphics chip. BTW- the new Apple TV interface sucks.
200 pounds is cheap in London. Heck the average hotel room costs over 200 pounds.
How could Apple NOT be getting any money for their iTunes movie rentals? How astute.
Next you’ll be telling me they charge money for their software.
I just dropped my $229 for an Apple TV. I was holding off because I was using Frontrow, but it seems as if it won’t be able to do HD rentals, only SD. The new software update did it for me.
@ Charles Apple’s cut of an Itunes sale is about 3% which just about pays for server farm maintenance and software upgrades and the once a week giveaways they have.
Let’s not get confused, Apple doesn’t make “3%” on their iTunes transactions. Apple profits 3-4 cents. So after paying for the everything, they make 3-4 cents a transaction. Those of you who “know”, should really check your “facts”. And before the first A-hole asks me about my facts that comes from peter O himself (CFO Peter O).
jarretdailynews:
Really? Pete and I were shootin’ the breeze the other day over beer and ribs at my place and he told me that Apple makes 7.5% on every iTunes transaction.
For the last time, listen, folks from EU zone! Currencies fluctuate. That doesn’t automatically translate into changes in pricing. Apple is not alone. This story is the same for every single brand whose headquarters are in the US. People outside the US somehow think that since these devices are American, and they sell for some specific amount in the US, that they must be as cheap elsewhere. Well, five years ago, you could get 1 Euro for US$0.90. Today, you have to pay $1.47. Back then, you didn’t hear us in the US crying how iPods were selling cheaper in EU than in the US!
Most manufacturers in the world that export to the US these days (and that is predominantly from China) are taking a serious profit cut in order to stay competitive in the US and preserve the price levels (in US$). Obviously, that’s their decision. How long will this last will only depend on how much further US dollar will slide against the rest of the world. The stock market plunge of 2008 doesn’t help things either.
To sum up: your Apple gear didn’t get any more expensive than it used to be. The price trend is always identical in the EU as it is in the US. Leave currency fluctuations out of it; it is not Apple’s fault.
> Apple changed their strategy with Apple TV because they had to.
Nonsense. The strategy was not changed; it just went to “Phase II.” Last year, Apple did not have the studio contracts in place to offer movie rentals in a meaningful way. Now it does. Apple often releases products to a limited (friendly Apple enthusiast) market to work out the technical bugs before making the device more “mass” market. Look at the iPod; initially, it was only for Mac users with FireWire ports. And there’s nothing surprising about Apple lowering the price of a new product after the initial release. So where’s the “change”?
Microsoft subsidizes XBox.
Apple subsidizes AppleTV.
Apple fanbois deride Microsoft’s actions, mock XBox.
Apple fanbois call it Apple’s grand strategy, call AppleTV an even better product now at a cheaper price.