The challenge is that people often want one or two shows on various networks. if they can't get those shows then cord cutting is not a viable option. Netflix doesn't have current TV shows so while it is a great product it is not a direct competitor for cable. Apple could offer, and has, current shows for purchase but at $20 or so it quickly gets expensive if you want to watch 2 or 3 shows per season. If I were Apple I'd find a way to deliver OTA HD signals to the Apple TV, perhaps with a wireless antenna. That solves much of the local channels problem for folks that can get a good OTA signal.
If the could come up with a cost effective local package / sport bundle / etc offerings it could be a viable offering. The challenge is competing with cable's bundled pricing. Most channels get pennies while a few get many dollars per subscriber. The ones getting pennies probably can't survive on their actual viewer able but can on cable since the subscriber base is much large return their actual viewership.
As for $40 pricing, you are probably correct. The problem is you still need broadband access, and buying it a la carte won't be that cheap. By the time you combine the two you are probably close to the bundled price, and cable companies will price aggressively to minimize Apple's inroads. In addition, with soft and or hard caps on usage 24 x 7 TV via broadband will have more people hitting caps and either paying more or curtailing usage.
Apple needs to cut deals with cable companies for broadband access for this to work. That will involve sharing revenue which gets problematic. Personally, I would cut a deal with Google to help underwrite faster Google fiber rollout and use that to get to more households. The combined cash and experience would essentially create a formidable competitor to cable and once they have enough subscribers networks will have to cut deals.
