This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Apple TV: Apple Wins, TV Networks Lose

Stocks in this article: AAPL

The typical razor/razor blade pricing strategy is straightforward: lock the customer in by giving away the razor and reap high margins from blades. Makes sense, right? It's a popular pricing strategy that has been successfully employed in many industries including laser printers (printer/toner) and gaming (console/games).

Apple (AAPL) has reaped hundreds of millions of new profits by challenging this standard pricing convention by asking (and answering) the simple question of, "Why do we need to give away the razor?"

Apple TV

Apple realized that when competition is low or non-existent, you really don't have to discount razors. The laser printer and gaming console markets are highly competitive, for instance. If a manufacturer doesn't offer a cheap "razor" price, consumers will buzz by without purchasing -- they have plenty of cheaper alternatives.

Competition was thin when the iPod was introduced, so what did Apple do? Reap high margins from its device and squeeze content providers with a "we are the only game in town" negotiating posture. With profits being decimated because the industry had failed to see that the future was "e," music companies succumbed. The result: 99-cent songs.

Music companies that once prided themselves on offering highly differentiated content morphed into manufacturers of commoditized products that are sold in a vast 99-cent virtual store. Apple's pitch to consumers was appealing: pay a premium for your iPod and then fill your music library with great music at bargain bin prices. "Sign me up," rejoiced music lovers.

Apple took a different tack with its entry into the e-reader market. Joining the crowded device market late, the iPad was rolled out at a lower then expected price. Most interestingly, instead of mercilessly negotiating with content producers for the lowest price, Apple opted to become the publisher's best friend. "Set whatever price you want and we'll take a standard 30% 'agency' cut," Apple cooed to excited publishers. With Apple in their pockets, publishers held their pricing ground with rival e-book sellers. The result: publishers are now calling the shots at setting content prices.

Earlier this month, Apple rolled out its redesigned TV console. Guess what? Media headlines were less about the $99 Apple TV (which allows consumers to rent television shows and stream them to television sets) and more about "99-cent television shows."

With few competing similar consoles on the market, the hip technology provider returned to its tried and true bag of pricing tricks: woo customers with low content prices. Apple's pitch to television networks is eerily similar to what Apple dictated to music companies: your profits are suffering, "e" is the next big distribution channel, and we are one of the biggest players in town. So far only Fox and ABC have bitten at the bait, but the chum is in the water.

1 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,356.87 +288.00 1.69%
S&P 500 2,012.89 +40.15 2.04%
NASDAQ 4,644.3120 +96.4780 2.12%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs