Posted in Marketing, Product
8/02 2012

Apple TV’s innovative business model

Many commentators have picked up on a piece from the Globe and Mail suggesting that Canadian telcos Rogers and Bell are currently testing Apple TV sets. This has led to a lot of speculation about the kind of business model that Apple might pursue.

MG Siegler at Parislemon questioned whether this model might be either similar to that of the iPhone or that of the iPad. The former is subsidized for consumers by the carrier and the latter generally paid in full at time of purchase.

Looking at the current state of the TV market, there are a few trends and behaviors to take into account:
– most consumers fully purchase their TVs (iPad model anyone?)
– cable companies provide set-top boxes, often subsidized for an agrees contract length (sound like the iPhone model)
– more and more consumers are cutting the cord

I actually feel that there are two kinds of consumers: cable tv subscribers and cord cutters. Apple will need to address the needs of both.

Cable tv subscribers

For this group, Apple and the Cable Cos will offer subsidized TVs sets rather than a set-top box for consumers who sign up to a lengthy two to three year contract. For apple, it reduces the barrier costs to owning their Tv and for the cable company it locks in consumers. I think eventually all cable companies will offer Apple TV, but initially there may be some regional exclusivity.

Cable cutters

A lot of Apple’s current customers are part of the cable cutting community, and therefore would not be interested in a subsidized TV with a contract. However, Apple would not be interested in shutting these people out and will sell them a TV at full price.

How much?

The $64,000 question is how much will consumers have to pay? A top of the line PVR cable box currently retails for around $400 without subsidy, so I expect an unsubsidized Apple TV to go for $1500 and subsidized $1000.

That may sound steep in today’s hyper competitive TV market, but Apple cannot lockup supplies like they’ve done with the iPad, and are not interested in scratching around at the bottom of the market.

Hence it seems an Apple TV model will be much closer to the iPhone than the iPad.