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Steve Jobs: struggling to redefine the TV paradigm

The devil is in the detail for Apple TV

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It doesn't matter how Apple TV (or the PC or the Mac or the iPod) manages the rental, because that technology is easy, but insiders told the Think Secret website that downloads will be date stamped and restrictions will placed on the number of playbacks or the time period for playback. It does sound a little too much like the CinemaNow and MovieLink failed business model for our liking, but if it can be scaled and pulled off by any company, it's Apple. It would be far better if the rentals have a 72 hour playback or longer, rather than the 24 hour limits of those prior services. Better still would be a multiple number of plays.

The nice thing is that the Apple TV only has to have virtually all the same code as a video iPod, and it can use the existing DRM, Fairplay, in its current iteration, to look after the playback and encryption. And so when iSuppli, the US teardown specialist, says that this is pretty much what Apple TV is, a video iPod with resilient wi-fi, then this fits the picture.

The device turns out to be an old Intel processor, the 1GHz Pentium M, worth $40, an Nvidia graphics chips, the GeForce Go 7300, worth $15 by iSuppli estimates, and components that just anyone can buy on the open market. Even the Wi-Fi is not radically different, but the Wi-Fi in the new Apple AirPort Extreme wireless routers handles the video resilience.

The conclusion that iSuppli reaches is that this device is priced to be at as low a price as possible with a margin of just 20 per cent on the $299 product. That means that anyone trying to copy the Apple TV route to market has to find a retail environment that is prepared to accept an incredibly low margin, and of course they won't. And iSuppli says this doesn't take into account the costs of cables, packaging, and marketing, so Apple's actual margin is actually even less.

Apple just about has the sales power to sell the Apple TV online and from its own retail stores and is expected to get just a million devices out there this year, because that appears to be the component volumes that Apple is ordering. But if a rental online movie service becomes viable and has that old Apple magic, then those order numbers can easily rise.

iSuppli is right in pointing out that Apple usually wants a 40 per cent to 50 per cent margin on its devices, but that in this case it is prepared to accept far less, because it means that a) no one else can follow the strategy through a retail set up, and b) that it needs the combination of Apple TV and rental video iTunes together to spark the next revolution. It is after volume here, not profit.

But what everyone is saying is that the Apple TV is NOT a DVR. By that they mean that it does not allow copying from broadcast TV. But if you go back three years to when Akimbo first introduced its service, it was a $250 set top that stored programs sent to it over the internet. But it WAS thought of as a DVR despite not recording from broadcast, and it soon amassed 15,000 programs or so that customers could rent. Apple TV is digital, and it does record video, it's just choosy about where it records it from.

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