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.