It’s getting to Apple product announcement season, which means that there’s a decent chance that an appified version of the Apple TV will be announced. There’s a lot that’s obvious about it (it’ll run iOS, its hardware will presumably close the gap with iPhone / iPads), and there are some big questions (what’s the input method going to be, in particular), and, knowing Apple, there may be a complete surprise somewhere.

What I’m wondering, though, is: what’s the business model going to be for the device? The current version is priced at $99: basically, it’s priced like an accessory to your iPhone and iTunes. And I imagine the hardware is cheap enough that they can get a reasonable profit margin for the current hardware at that price, though who knows.

I would also imagine, however, that that profit margin will disappear (and possibly go negative) if its guts get noticeably ramped up. (Which will be necessary if they’re really trying to take a swing at the core game console market; I’m not 100% convinced that Apple is going to do that, but I think they probably will?) And I also imagine that there’s more to the profit margin than just selling price minus manufacturing cost. And, of course, it’s not at all given that a more powerful Apple TV will stay at the $99 price point, though if the only option is, say, $199, then that will reduce its effectiveness as an iPhone / Apple content ecosystem accessory.


I could be wrong about the margin disappearing if the guts get more powerful: Ben Thompson presents some figures based on an IHS report that suggest that, actually, an Apple TV based on current hardware would cost about $99 to make. Of course, Apple likes their profit margins, so I don’t think they’d actually sell it at $99; but something in the $149 – $199 region might work? And maybe they’ll keep around the current version for people who really just want an accessory? I’m not sure.

The other aspect of pricing is actually the one I’m curious about. While grocery shopping today, I was listening to John Gruber, among other things, blast traditional windows PCs for the crapware that comes with them; that’s mercifully absent on most Apple devices, but the one big exception is the Apple TV. Not that the Apple TV comes with anything that’s as bad as Norton nagware, but still: the device is full of stuff that I don’t care about, that I would never install and don’t want on my screen. And I assume that Apple is not doing this out of the goodness of their heart (though admittedly, in the absence of an app store, it does help users to have some of this), I assume money changes hands.

But I also assume, based on Apple’s past behavior, that most or all of those third-party apps are going to stop coming by default with an appified version of Apple TV: people can download what they want. What I’m not sure about is if Apple cares about that. It does feel to me like, to a larger extent than on the iPhone / iPad, the most important apps on an Apple TV are going be ones where Apple doesn’t have a natural connection to the revenue stream, because they’ll be free and accessible via non-Apple subscriptions, so the crapware money would be going away.

Maybe I’m wrong about that last sentence, though: because my understanding is that the Apple TV Netflix app does provide an option to subscribe to Netflix via your iTunes account? So, if that’s the case, maybe that will be the norm for media apps on the Apple TV: they’re accessible via third-party subscriptions, but Apple will require vendors to provide an option to subscribe via your iTunes account, and because of inertia, Apple will actually make a quite decent amount of money through that? That makes sense now that I type it out; I’m curious if Apple takes a 30% cut from subscriptions like that or if they take a smaller one. And it certainly beats having crapware preinstalled.


So, probably no big mystery here: the device will be cheaper to make than I initially thought, Apple will raise the price enough to get a decent profit margin, and the crapware fees will turn into more up-front subscription fees? I’m still curious how it will compete as a game machine: I’d imagine it will be significantly cheaper than either the Xbox One or the PlayStation 4, and I imagine that much of that is because of significantly lower performance. (How does the A7 GPU compare to modern PC GPUs?) Metal will help compared to previous iOS versions, but I assume that’s just bringing iOS up to parity with the console world in terms of architecture tax. And, hey, if lower GPU performance means that the latest shooters don’t work on the Apple TV, that’s perfectly fine with me…

There are potentially other ways in which iOS 8 will help the Apple TV: Muttering suggests that app extensions will offer some interesting controller possibilities, and Macworld raises HomeKit possibilities. That latter article in particular gives other reasons why Apple might be willing to keep the margins a bit lower on the Apple TV than on their other products: it could continue to evolve in its current role as a piece of plumbing that helps the ecosystem as a whole thrive.

And, of course, it’s entirely possible that we’ll have to wait until 2015 for the new Apple TV to materialize: this fall is clearly going to be a more-interesting-than-normal Apple product announcement season, but it seems like knowledgeable people are more confident that there’s going to be a big wearables announcement than a big Apple TV announcement? I certainly don’t know, and Apple is clearly capable of waiting until something is ready. I’m mostly just looking forward to replacing my phone, and I’m curious about Continuity (enabled, in my case by Family Sharing).

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