First Proof Apple Making Near Zero on AppleTV (And Big Bucks on iTunes)

Click to viewThat 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. So, we went to teardown masters iSuppli for a fresh estimate to see how much of it was paid for by falling component costs over the last year. Surprising answer: Not that much. Apple really is subsidizing Apple TV, a significant shift in strategy.

First Proof Apple Making Near Zero on AppleTV (And Big Bucks on iTunes)

This chart makes the damage pretty clear: Apple barely ekes out a 10 percent profit (a single Jackson) on the 40GB model at the new pricepoint, a far cry from its more typical 50 percent margin.

Andrew Rassweiler, iSuppli's Teardown Services Manager & Principal Analyst, says that while the processor is admittedly the "big unknown for us" because it's not an off-the-shelf component, he "doubts it would be anymore expensive than what we've assumed." The bottom line for Apple's bottom line here is that "if they were giving it away before, they're definitely giving it away now."

This is a marked change for Apple: iTunes content has existed to sell the hardware, not the other way around. iTunes income is incredibly minor compared to hardware sales, not least of which because the majority of each track, album, whatever goes back to the label or studio. Apple TV stands to be the first device Apple makes more money off of the content than the hardware.

Conclusion? Apple is getting aggressive about moving into the living room, looking at the long run of establishing that fourth-leg. Besides, it's better to sell a million at a $20 profit than ten thousand at $60. [iSuppli]