Computerworld's Seth Weintraub first speculated that Apple is subsidizing the cost of Apple TV with their new movie rental sales. Indeed, Apple dropped the price for the Apple TV ($299-$399 -> $229-$329) at Macworld 2008 -- but this discount was only reflected in the U.S. and Canadian markets. To be fair, Apple's international pricing has always been higher than the U.S. counterparts, but this discrepant price drop did raise some eyebrows.
To followup, Gizmodo asked iSuppli for the current materials costs for building the Apple TV. According to their numbers, the $229 40GB Apple TV costs $208.20 to build while the $329 160GB Apple TV costs $235.70 to build. This includes raw component costs alone without taking into account assembly, packaging, shipping, and development costs.
These 10-30% margins are significantly lower margins than Apple typically enjoys on their hardware products, suggesting that they are indeed aggressively pricing the units to drive more sales. The Apple TV was originally launched at Macworld 2007 but was reportedly met with modest sales. Apple revamped the Apple TV at this year's Macworld with the inclusion of direct-to-tv movie rentals. This revamped software will be available as a free software update to all Apple TV owners this week.
