When I first bought the Apple TV, there were two varieties: a 40 gigabyte version and a 160 gigabyte version. I was torn between which one to get, but I ultimately went with the 160 GB one thinking I could put most of my movies on it. Big mistake. I basically never use the hard drive on my Apple TV, so it’s a 160 GB hard drive sitting there doing nothing. Instead, I stream everything to the Apple TV.

In fact, the only time I do use the hard drive on my current Apple TV is when I rent a movie on it. Currently, even when renting, you download a movie to your hard drive where it sits for up to 30 days (or 24 hours after you start playing it). But with the new iTunes rentals (both TV and movies) everything is streamed — no hard drive is required (besides a small one for buffering purposes). Thanks to that, and undoubtedly the knowledge that most owners were using it for streaming, Apple removed the hard drive from the device, and cut it down in size and price.

Now, at one-forth the size and less than half the price, it’s an even more attractive way to get your iTunes content into your living room. And it has a few very nice bonuses. The mixture of the new Netflix functionality with Apple’s new release rental movies makes this an excellent in-home movie machine for the masses. For those who pay $9 a month to Netflix, you get access to tens of thousands of older movies. For those interested in newer movies, they’re $4.99 a pop from Apple.

Yes, Apple removed the option to buy movies on the Apple TV itself. But you can still do this through iTunes on your computer — or on your iPad/iPhone/iPod touch. And guess what? With the forthcoming AirPlay feature, you’ll be able to stream any of those purchased movies right from any of those devices to the Apple TV. In a way, it sort of does make the Apple TV a $99 iPad accessory.

Further, the removal of the option to buy (as well as the removal of the SD options) make Apple TV much less complicated for general consumers. Now there is no question about whether you should rent or buy. There is also no question about whether you should do rent or buy in HD or SD. I suspect most people were renting in HD on the device, which is why Apple made the move it did to eliminate the other unnecessary options. They’re keeping it simple, stupid.

Apple also removed the option to buy TV shows — which never really made much sense to me. There are some shows that people would like to own, but most are definitely watch-once programs. Previously, there was no rental option, you had to buy. Worse, even if you did want to own a lot, the old Apple TV didn’t have nearly enough storage to handle them all — some HD TV show seasons take up 30 GB of space or more. The model just didn’t make a lot of sense.

Granted, Apple’s current $0.99 TV show rental option is pretty weak. They only have shows from ABC and Fox — and only some shows from Fox. But obviously, just as happened with iTunes music and movies, Apple is hoping all the studios eventually get on board.  And if they do relatively soon, the Apple TV will be a very interesting device to consumers as both a movie box and as a potential cable replacement. Sure, most people aren’t going to feel comfortable totally killing cable just yet — but at $99, this will be a very interesting experiment for a lot of people.

All that said, let’s be clear: this Apple TV is not the killer device in the living room. This will be more popular than the current Apple TV, but it will not be iPod/iPhone/iPad-big. And Apple seems to know that, which is why they’re still talking cautiously about it.

The problem Apple faces is the same problem that everyone faces: content agreements. Hollywood is proving much harder to convince than the music labels were. In a few years, if DVD sales keep falling and cable revenues start decreasing, they’ll be more receptive to new options.

The killer Apple TV would have TV network subscription packages. It would offer live events. It would have every movie ever made available on-demand.

And on-demand is the big key to all of this. All of this content is going to move to the cloud. It has too for storage purposes and given how many devices we all have. Rentals just completely made the jump, but eventually purchases will too. At first, you’ll have the option to download certain movies you’ve bought to take on the go, but when you’re at your home, even movies you “own” will be streamed — they’ll simply be streamed for free. And then one day, all of this stuff will be in the cloud entirely as mobile devices will always be connected by high-speed wireless.

This is the future. It’s Apple’s future along with everyone else’s. This Apple TV is one small step in that direction, and at $99 it makes sense for now — at $229, it never did. This is a stepping stone to the cloud age. Right now it’s a mixture of the internal cloud (streaming from within your house) with the external cloud (streaming rentals from the cloud). Soon it will all be external.

If this half-step isn’t your thing, if you want more functionality, buy a Mac mini. There’s a reason Apple just added a HDMI output to it. But that device is too complicated and way too expensive for most consumers to use as a set-top box. The Apple TV is simple.

Oh, and one more thing: the true killer Apple TV device will have apps. I’m still absolutely convinced (as many people are) that it’s only a question of when they make the jump to the living room. The fact that this new Apple TV is running iOS seems to be all the proof one should need that this will come eventually.

When that happens, the Apple TV will become a hell of a lot more than a hobby.

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Authors: MG Siegler

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