A breakdown of the components and costs in the Apple TV by iSuppli reveals that the profit margin on the Apple TV is likely far less than an iPod.

Business Week reported on the breakdown, and commented that when Apple CEO Steve Jobs called the Apple TV a hobby, "he wasn’t kidding."

iSuppli estimated that the components and materials in the Apple TB amount to US$237.00. With a retail price of $299, the profit margin is about 20 percent. That’s in sharp contrast to some iPods and likely the iPhone as well.

Even more interesting is Apple’s plans for "subscription accounting" in which the associated costs and revenue are distributed over 24 months. As a result, the Apple TV isn’t expected to contribute much to Apple’s bottom line for some time.

"This is certainly a departure for Apple, or at least it’s approaching a departure," said Andrew Rassweiler, analyst with iSuppli. "We made some very aggressive assumptions with this device, and by that I mean we assumed low prices on the components." Mr. Rassweiler said that if the actual costs were any higher, Apple would be subsidizing the product, making up the difference with content deals.

The introduction of the 160 GB drive increases the profitability slightly.

Under Steve Jobs, Apple has been fanatic that products must generate revenue or get axed. In this case, however, the long term prospects and strategic implications of the product may mean that Apple is willing to settle for modest profits. It’s definitely a starter product with plenty of growth potential, even though some analysts are worried about the current sales volume.