Now we know why Apple’s Lightning to Digital AV adapter costs so much. Good news: it isn’t because of Apple’s high profit margins. Instead, it appears that Apple was forced to go in a much different direction with this than is traditionally done.
Becoming suspicious of artifacting and limited options, Panic software (makers of fine applications for the Mac) decided to investigate by — of course — tearing one apart. And when their unit was torn apart, they found a tiny motherboard, containing an ARM processor with an Apple logo, and parts numbers that suggest 256 MB of RAM on board.
It appears that this tiny adapter is in fact utilizing Apple’s AirPlay — or some other type of short-range distribution standard — to deliver video that can then be transmitted through the AV cable. That’s a rather roundabout way of completing the task, though it is rather ingenious; however, there are apparently downsides, as Panic noticed during their use.