Let me add my thoughts on where Apple believes it will be making money.
AppleInsider notes that profits are low on the Apple TV (based on iSuppli’s latest teardown results) and therefore it must be a market-share/customer-acquisition, game. While I do agree they had to price the hardware faintly (if only not to offend would-be customers), there surely is more to it than to say it’s short-term strategy is only about gaining market penetration. I would be willing to bet a Apple TV that Apple in fact has a business plan that is a shiny-happy, positive NPV. I can all but guarantee it. Whether it is realistic, I don’t know. Time will tell.
One must presume that Apple’s marketing folks factored in some incremental sales of iTunes content that is part of the unit contribution for each Apple TV sold. Afterall, iTunes is more or less a fixed cost at this point, and the Apple TV adds another point-of-sale. Whaddya think? Afterall, unless you are a dedicated iTunes user, the Apple TV is basically hamstrung, and quite undifferentiated against other DMAs.
Microsoft has similar tactics… if not with more lofty goals. Their Xbox is not a money maker on hardware sales alone, in fact rumor is it is quite the opposite. But they make up for it on the games/software/accessories sales. Which have very healthy gross margins baked in.
These are all networked business models. Not as simple as classical consumer electronics economics anymore.
