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After variously describing it as a hobby and pointing out that sales 
have been strong, Apple (Nasdaq: AAPL) appears to have begun restructuring its Apple TV line.
On Sunday, it dropped the 40 GB model from its lineup and cut the price of the 160 GB model by US$100, to $229.
Could Cupertino be giving up on the device, or is it laying the groundwork to take it to the next level?
Funny Little Box
A check of Apple's site shows that only the 160 GB model of the Apple TV is listed. However, the site also points to a free software update for owners.
The update's features let users create movie wish lists and watch films with subtitles and in foreign languages. The new software also allows for the purchase high-definition TV shows with Dolby 5.1 surround sound, make playlists of music videos and create Genius Playlists, and control the Apple TV from an iPhone or iPod touch.
The Apple TV device will check for and download the software update automatically.
Although Apple no longer lists the 40 GB Apple TV on its site, they may still be available at other online stores, including Amazon.com (Nasdaq: AMZN) and SmallDog. However, both these sites listed the devices at their old prices when they were checked.
Also, the tech specs for the 40 GB model are still available on Apple's Web site.
A Hobby or a Real Player?
Perhaps Apple is only hedging its bets -- at its Q1 2009 earnings call in January, then-acting CEO Tim Cook said that Apple TV sales had tripled over the past year, and that Apple would continue to invest in the device, but that the company still considered it a hobby.
That remark was in line with a comment from CEO Steve Jobs during the previous quarterly conference call in October, when he described the entire category of combined TV and media players as a hobby.
"Merging TV and computers is still an up-and-coming technology," Allen Nogee, principal analyst at In-Stat, told MacNewsWorld. "Apple's probably facing the same learning curve as Microsoft (Nasdaq: MSFT) did with their Windows Media Center."
The trickiness of melding the two technologies is one of two problems Cupertino faces in pushing the Apple TV, said Rob Enderle, principal analyst at the Enderle Group. The other is competition from cable companies' set-top boxes.
"When set-top boxes are available from your cable company, getting an Apple TV may be redundant or not a great experience," Enderle told MacNewsWorld.
No Pain, No Gain?
Overall, getting up to speed in the media extender category has often proved painful for several companies. "HP was in this market and it got out," Enderle said. "NetGear and Linksys had products that never sold well."
The only product that has done reasonably well is the Microsoft Xbox, Enderle said, and that is probably because most people buy it to play video games rather than to use as a media extender.
Apple probably is not as successful with the Apple TV as it is with other products because Jobs is not involved, Enderle believes. "Steve's not a TV watcher, and for him to have anything to do with TV is like pulling teeth," he said. "Part of the problem could be that he's not behind the Apple TV."
Gearing Up for Expansion?
The Apple TV has an Intel (Nasdaq: INTC) processor and works with a Mac or PC. Communications features include AirPort Extreme; WiFi 802.11b, 802.11g or 802.11n; and 10/100BAE-T Ethernet.
It has HDMI video and audio ports and a built-in infrared receiver. It supports the following video formats: H.264 and protected H.264 from the iTunes Store; MPEG-4; AAC and protected AAC.
Videos bought from the iTunes store are displayed at up to 720p.
With all the capabilities in the Apple TV, chances are that Cupertino will continue to develop it further. Piper Jaffray analyst Gene Munster expects the Apple TV to include digital video recording (DVR) capabilities or a subscription service for TV shows later.
Another hint may lie in the new features available in the just-released iTunes 9 software. Daniel Eran Dilger, writing in the Roughly Drafted blog, noted that iTunes 9 introduced two identical formats for adding new bonus content to existing music and movie downloads -- iTunes LP for music albums and iTunes Extras for select movies.
Pointing out that neither of these plays on the iPhone, Dilger said these carry bonus content at a resolution of 1,280 by 720 pixels -- way larger than what would be needed for a mobile device.
The 13-inch MacBook delivers graphics at 1,280 by 800 pixels.
Could Cupertino succeed in making the Apple TV a product consumers want? Perhaps. "Apple has done the best job with these media extenders of anyone so far," Enderle said.
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