Munster claims discussions with a “major TV component supplier” which had been contacted by Apple about its TV display parts lead him to believe Apple is still on track to introduce a dedicated television device in late 2012. However, there’s a caveat: Munster thinks if Apple can’t get a revolutionary new content model in place, then it won’t move on the market this year.

The analyst then goes on to suggest three possible scenarios that might constitute a unique Apple approach to the television market. Those potential solutions break down roughly as follows:

1. Changing the experience, not the service

In Munster’s first scenario, Apple would basically leave TV programming to existing operators and simply layer its own interface software on top, including menus, guides, DVRs and content discovery. Munster notes that Apple was expected by some to manage its own wireless network in the U.S. ahead of the iPhone launch, but instead partnered with AT&T and focused on UI and UX instead of content. Remember that apps came after the iPhone’s original introduction.

2. A hybrid content model

Apple could also partner with existing networks to offer live TV, and at the same time, deliver on-demand content from providers like Netflix, Hulu Plus or any other content partner willing to play via an App Store-style distribution channel, Munster suggests. It’s a “best of both worlds” type solution, and would probably still come complete with an overhauled UX, but might be trickier to negotiate than option number one, since it involves negotiating with two different types of content providers.

3. A la carte

Munster’s last option is a completely customizable, a la carte option that would see users subscribe to live TV packages from content providers. This would be the most revolutionary of the options in terms of the existing TV experience, but it would also involve a dazzling shift in the way providers make their content available, and the negotiations involved in doing so would be challenging, at best. In the end, there’s also no real guarantee that selective programming is what viewers are after, especially if existing, less flexible bundles from other sources cost less.

GigaOM’s Ryan Lawler wrote last year that Apple’s television effort was more about experience than about content, and described a likely outcome of Apple’s TV endeavors that pretty much mirrors Munster’s second scenario listed above.

Given the challenges involved in negotiating the third solution, I have to agree that a system that works with existing content sources, but also opens up the possibility of apps for different kinds of content makes the most sense as a solution that could still make big waves in the TV industry while also remaining realistically possible in the near-term. Which of Munster’s Apple TV predictions, if any, make the most sense to you?

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1. iTunes gift certificates and apps. If you have an app, TV show, or songs you’d like to share, you can quickly and easily gift them to someone right from iTunes. Generic iTunes gift certificates are available in amounts of $10 to $50 in $10 increments if you’re not sure of a person’s exact tastes.

2. Online backup. Nothing says “I love you” like the gift of preventing data loss. If someone you’re buying for hasn’t developed an onsite backup strategy, you can both give a gift and do a good deed. Both CrashPlan and Backblaze (two of my favorite online backup services) offer gift subscriptions for $50. Sure, it isn’t a very fun gift, but it’s practical, and when a recipient accidentally lose a file, they’ll hopefully remember how you helped them.

3. Audible. I’ve been an Audible fan for a very long time. Someone who has a long commute to work will appreciate the wide variety of books that they can listen to via the service. You can give an individual book (the geek on your list will love “Ready, Player One” narrated by Wil Wheaton) or give a monthly subscription that allows for multiple purchases. Three month subscriptions start at $45.

4. Pandora One. For the audiophile who loves their custom stations and playlists but winces when they hear an ad, how about a gift subscription to Pandora? No more pink cupcakes. I’d suggest Spotify, but gift subscriptions aren’t available in the U.S. yet. Coal in that company’s stocking for sure.

5. Hulu+ or Netflix. If the hard-to-shop-for person on your list loves TV or movies, a gift subscription of Hulu+ or Netflix will allow for streaming of video content to their iPad, iPhone, and desktop. Unfortunately Hulu+ doesn’t work directly on the Apple TV, so Netflix would be a better choice for users of that device. Both products have gift subscriptions that start at $7.99, and both give you a choice of attractive gift certificates to print at home.

There you have it. You didn’t procrastinate, you were simply waiting for the perfect gift, and now you have a great list. Happy holidays and next time, plan ahead!

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While not all shows have received the HD treatment (The Wire and Treme are still SD-only, for instance, along with older seasons of long-running shows), it’s a good start. Pricing varies, but per-episode costs for HD shows is either $2.99 or $3.99 depending on the title. Seasons are priced accordingly, so a full nine-episode season of Big Love, which is priced at $2.99 per episode, runs $26.91.

HD on the iTunes Store means 720p resolution, and the purchases are then available for playback on your computer, your iPad and over AirPlay to your Apple TV. Of course, HBO Go offers free high-definition streaming of HBO shows, so long as you have an active subscription to the network on one of its participating cable or satellite providers. But the HBO Go iOS app doesn’t support AirPlay streaming, and it requires an active connection to work.

It’s nice to see Apple’s available library of HD content expand with the addition of a number of quality titles. But at the same time, the pricing model still seems broken when measured against more affordable all-you-can-eat streaming services like Netflix and Hulu. Do you plan on taking advantage of the new HBO content, or are you still holding out for a change in Apple’s approach to digital video sales?

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The story cites two people “with knowledge” of the auction, which is being run by two investment banks that Hulu hired to help negotiate a sale. That Apple could be considering Hulu isn’t exactly unique: Yahoo, Microsoft, AT&T and Google have also been linked to the Disney/News Corp./NBC Universal joint venture.

The plus for Apple taking over Hulu would be the addition of a lot more content to beef up its iTunes and Apple TV offerings and present an alternative to Netflix. Apple has long been said to be working on its own subscription video service, but that has yet to come to fruition.

A big acquisition like Hulu would also be one way to quiet those on Wall Street who are begging Apple to get more value out of the cash it’s keeping around.

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Under section 11 of the App Store Review Guidelines, we’ve confirmed that there’s a new section (hat tip to MacRumors) that allows apps to access and provide content subscribed to or purchased outside of the App Store, with one caveat:

11.14 Apps can read or play approved content (specifically magazines, newspapers, books, audio, music, and video) that is subscribed to or purchased outside of the app, as long as there is no button or external link in the app to purchase the approved content. Apple will not receive any portion of the revenues for approved content that is subscribed to or purchased outside of the app.

Apple still says apps that link to outside stores, subscriptions or purchasing methods will be rejected, but it’s no longer requiring that publishers offer subscriptions or purchases in-app if they also do so in another venue (like the Amazon Kindle store, for example).

Apple has been steadily winning magazine and newspaper publishers over to its in-app subscription method. But it’s unclear if any of the decisions made by publishers were influenced by the fact that before today, Apple seemed ready to turf them out of the App Store entirely come June 30. Still, magazines seem to be doing well using in-app subscriptions, so Apple may have accomplished what it needed to on that front by demonstrating the value of its subscription system.

Some users had feared that Apple’s ultimatum on this issue would result in the loss of key apps from the App Store, including Amazon’s Kindle e-reader, and could possibly affect relationships with other great content providers like Netflix and Hulu. Thanks to these revised guidelines, it looks like those apps will remain available to iOS users relatively unchanged, though Amazon will have to do something about the link to their web store that they provide in the current Kindle app.

Whatever the reason, I’m glad Apple backed down on this one. It’s probably better off making the App Store such an attractive vector for in-app sales that content providers opt to use it, rather than trying to force the issue and hurting users in the process.

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Weighing in at just over 4 GB each download, this update will likely be a major contender with Netflix for internet bandwidth.  Especially as Apple’s 54 million Mac users begin to upgrade.  While priced the same as OS X Snow Leopard, this cat is no slouch.  With over 250 new features, Mac users will be more likely to want to update sooner rather than later.

What will be interesting this time around is how one performs this download-based upgrade. While users have gotten familiar with the upgrade process of the disk-based distribution, the Mac OS X upgrade path will likely be a little different; requiring enough free hard drive space for the download, the upgrade process, and the larger OS foot print that will likely result.  At a time when Mac users are opting for the faster yet smaller SSDs, extra hard drive space, like network bandwidth will be at a premium.

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Send a Gift Directly From iTunes

The great thing about gifting someone an app, album, TV show or movie is that it’s instant. So if you’re a last-minute shopper, this should be just what the doctor ordered. On the Mac version of iTunes, it couldn’t be easier.

• Select either the app, album, TV show, audiobook or movie you want to gift
• Click on the drop down arrow next to the price and select Gift This Item
• Enter the recipient’s e-mail address

As to which app is best for Mom, Apple has created a special Mother’s Day list of apps if you need some ideas. You can gift apps directly from the App Store on your iOS device.  If there’s a problem, log on to your iTunes account and review your purchase history. There you’ll see each of your gift purchases. You can enter each gift purchase and either report a problem or send it again.

Gift Card for iBook, Electronic Gift Card for Kindle

There’s also the traditional means of getting a gift card.  One option is to get an electronic version of the gift card and have it sent directly to the recipient’s inbox on the device to which the gift card will more than likely be applied.  Unfortunately, books aren’t currently able to be sent as gifts directly from within the iBooks store. You can at least ship an iTunes gift card directly from your iOS device using the official Apple Store app.

• Search for “Gift Card” in the Apple Store app.
• Choose the gift amount you want to give.
• Tap the price button and click on the green Add to Cart button, then Checkout.
• Before you place the order, be sure to edit the shipping address.

Neither the iOS Apple Store, nor the online Apple Store has a way to email an iTunes gift card directly. Amazon, however, does. Amazon gift cards can be emailed directly to the recipient. Just search for “Gift Card” directly from the iOS Amazon App.  You can even send the gift card via Facebook.

Pre-Pay for Online Services Like Netflix

If bandwidth caps don’t drain us dry first, we’ll all be nickel-and-dimed to death by monthly recurring charges.  You can either ease your mother’s burden by paying for her current subscriptions, or add to her pain by introducing her to yet another online service.  Online services like Netflix are allowing gifts of a number of months between individuals. Three months of Netflix would be a great add-on gift if you’re considering giving an Apple TV this Mother’s Day.

Any other ideas? What kinds of Apple-related gifts are you giving your mom this Mother’s Day?

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Bloomberg cites “two people familiar with the project” as describing a new plan Apple is considering whereby it would license AirPlay to makers of televisions, receivers and other consumer electronics that allow for video playback. Currently, AirPlay tech is available for licensed use, but only for audio streaming, as in the Denon receiver Geoffrey recently checked out. Adding the ability to stream video would mean users could potentially stream content from their iOS devices or iTunes libraries directly to their TV or home entertainment setup, without the need for an Apple TV or tethered iOS device to act as a receiver.

Were the deal to go through, it could potentially allow Apple to expand its living room presence. Apple so far hasn’t been able to succeed with digital video distribution the way it has with online music sales, and a recent study found it trailing the industry leader Netflix by a wide margin. Part of that gap has to do with how Netflix is available on such a wide selection of devices, including Internet-connected televisions, home gaming consoles, computers, mobile devices and even Apple TV. Licensing AirPlay video streaming would unlock it from the confines of Apple’s own products, allowing it to begin to compete with Netflix in terms of consumer platform choice.

Greater availability of AirPlay devices would also better leverage the impressive iOS user base Apple has managed to accumulate. Right now, AirPlay is really only a value-added feature if you have an entire ecosystem of Apple products. If you only own one iPhone or an iPad, there’s very little that AirPlay brings to the table. Licensing would heighten the value of AirPlay as a selling feature for all iOS devices.

Of course, the trade-off is that consumers would have one less reason to buy Apple TV. Right now, much of the appeal of the device comes from just two of its features. First, it’s a great Netflix client. Second, it works flawlessly and without much effort for users who want to stream video from iOS device to TV. Sales would almost certainly fall if Apple made AirPlay more available from other sources.

But that could be a loss Apple is willing to accept. At last known count, the Apple TV had sold just over a million units in late December. It’s a good number, especially when compared to the sales of its predecessor, but by no means is the Apple TV the sales star that the iPhone or iPad is, and Apple hasn’t seen fit to crow about any other sales milestones for the device since, which isn’t a great sign regarding its fortunes. If the Apple TV dies but in exchange, Apple gains a broader foothold in the living room that it can use as leverage in negotiations with film and television content providers, it might be a worthwhile bargain for the Mac-maker.

What do you think? Would “AirPlay Video-enabled” stickers on TVs and home theatre receivers affect your buying decision? Does the Apple TV have legs without AirPlay exclusivity?

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According to NPD, the iTunes Store accounted for just 4 percent of video downloaded or streamed through February of this year in the U.S., making it just one of many also-rans trailing Netflix, which dominates with 61 percent. Twisting the knife, at least part of Netflix’s success is a direct result of Apple. More than a hundred million iOS devices can stream Netflix content, and in January Netflix announced that the Apple TV “in just four months has passed the also-growing iPad in Netflix viewing hours.” How did a company as savvy as Apple end up opening the back door to such strong competition in the digital video space?

It is the success of the company’s music strategy  (the iTunes Store accounts for about 66 percent of retail music in the U.S.) that has arguably done the most to hurt Apple’s video efforts. Fairly or not, music industry executives, not to mention aging rock start Jon Bon Jovi, see Apple’s success as at least partially “responsible for killing the music business.” Movie studio and television network executives are no doubt wary of being victims of a similar success.

Last fall with the introduction of television rentals for the iTunes Store, Jeff Zucker, then CEO of NBC, asserted NBC did “not think 99 cents is the right price point for our content.” Since then, ABC and FOX remain the only networks renting television. The situation appears even worse for Apple’s long-rumored video streaming service. Going back to 2009, a plan for offering network content for around $30 per month has repeatedly failed to materialize, despite the fact that this very similar to what the dominant Netflix offers. And that could be how Apple turns the situation around.

By appealing to the concerns of network and television studios, Apple could position itself as an alternative to the dominance of Netflix, a strategy similar to the one it used against Amazon’s Kindle with the iBookstore. Unfortunately, that would likely mean more favorable deals for content providers than Apple seems inclined to offer, but that difference could be partially made up by applying subscription fees of 30 percent to Netflix accounts originating on iOS devices. If Netflix then pulled its app from the App Store instead of complying with new subscription rules, consumers would have the iTunes Store offering equivalent streaming content (if, of course, it can convince studios to come on board). Apple risks alienating users by forcing Neflix to make a choice between leaving and complying with its subscription fee structure, but it can always backtrack if it starts hemorrhaging a significant number of users.

If that sounds like a huge risk, it is, but the stakes are high. At least some Android devices will soon be getting Netflix, and it’s already available on a wide variety of different platforms, including all major home gaming consoles. Netflix is also a much better value than iTunes rentals or purchases, with $8 granting users unlimited access. If Apple can’t come up with a better, cheaper way to sell its own video wares, it may be better off concentrating its efforts on making sure partners like Netflix continue to feel welcome in the App Store ecosystem, lest they abandon the platform and take a considerable number of users along with them.

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Gleacher & Company’s Brian Marshall said Dec. 29 that according to his estimates, sourced from company reports and additional research, Apple rents around 475,000 movies and TV shows per day through the iTunes store. Netflix, by comparison, rents over 10 times as much, with about 5.1 million rentals per day.

But Apple and Netflix have very different models. Netflix offers a “pay once, watch as much as you can” model, while Apple embraces a fee-per-download way of doing things. Maybe Apple is more successful from a revenue perspective, despite the large discrepancy in daily rentals? Not so, according to Marshall.

According to his estimates, iTunes rentals bring in around $60 million per quarter, while purchases through the media distribution service account for around $50 million, making for a total of approximately $110 million per quarter. Netflix’s reported revenue for just a single month (Sept. 2010) is about $550 million, or five times as much.

It’s by no means bad news for Apple, which is still growing its iTunes rental business. Marshall believes iTunes rental revenue could exceed $1 billion per year within five years, giving it another fairly healthy revenue stream, even after giving movie studios their cut.

The bottom line remains that Netflix has far more traction than iTunes as a means for renting and viewing streamed content, so it’s hard to underestimate its effect on Apple TV sales. Anecdotally, it’s the only thing anyone I know who has one uses it for, and almost none of those I know who bought this model owned a previous generation device.

So is Apple TV just a great Netflix box, or is something else driving sales? The impending potential of apps, maybe?

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As with all Apple products, the unboxing of the Apple TV is a lesson in minimalism. It’s hard to imagine the tiny black square of plastic, hardly bigger than the gum-stick remote, bringing all your entertainment to your living room.

Installation and Setup

Compared to other set-top boxes, installing the new Apple TV exemplifies the “it just works” philosophy associated with Apple products, assuming you have an HDMI cable. Would it kill Apple to spend an extra 20 cents for an HDMI cable to ensure everyone can run it out of the box?

The Apple TV connects to the television (in my case a 60-inch 1080p plasma) using only an HDMI cable, so long as you have one. After that, just plug in the power cord. Here we see the first minor flaw in the new Apple TV. That power indicator light flashes, a lot. How that slipped past QA, I don’t know, but hopefully a firmware update will fix it. Until then, a spot of electrical tape will do.

Initially, you control the Apple TV with the included remote. However, if, like me, you have an Apple Remote kicking around that came with an old MacBook, and think the play/pause button in the center of the wheel was the pinnacle of design, you can use that, too. Owners of an iOS device will definitely want to upgrade to the Remote app, especially to ease the pain of text entry.

From the setup menu, you choose a language, and whether or not to send diagnostic and usage information to Apple. After that, you add the Apple TV to your Wi-Fi network, though Ethernet is also an option. Lastly, you turn on Home Sharing, both on the Apple TV and in iTunes 10 on every computer you want to access content from. It’s as simple as entering your iTunes ID and password.

It’s important to remember that if iTunes can’t import it, the Apple TV can’t share it. If you want .mkv video, you should be using VLC on a home theater PC. But if you’re looking for ease of use, well, I had the Apple TV up and running in about five minutes.

iTunes

Not surprisingly, the UI has big text for readability and navigation, but the layout could be better. Simplified from the previous iteration, it’s a little too simple, dumping a lot of different content into non-intuitive “Internet” and “Computers” categories. As the prominent placement of two of the five main menu options indicates, the iTunes Store kiosk in your living room is still open for business.

Performance of iTunes was amazing, at least on my connection, which runs in excess of 20Mbps down/0.5 Mbps up. The top movies display as icons, and my screen was filled almost instantly. If you want the virtual equivalent of walking the aisles at Blockbuster, you can browse by genre, or do a search, which is predictive and offers movies and related categories like actors and directors.

A selected movie offers a trailer, the quality and price of rental, an “Add to Wish List’ and a “more” option. The last provides reviews from Rotten Tomatoes and customers, as well as links to other works by the principal actors and creators of a film.

The Television section works similarly, though the dearth of content becomes obvious when browsing by network. There are nine “networks” subdivided out of four: Fox, ABC, BBC, and Disney. Choosing a title provides information on quality and viewing license, and paying for the rental is easy, though delivery is a little annoying. There’s no indication when a download has begun, though you’re notified when enough of the content is available to watch, which took less than a minute in my experience.

The 720p video quality was, in my opinion, very good, and only the extreme videophile should have something to complain about. Overall, the experience at the iTunes Store is excellent, but then Apple makes coin on this, so why expect anything less?

Netflix

The Netflix experience is likewise excellent. Unlike the iPad and iPhone app, which is little more than a wrapper for the web page, the Apple TV version of Netflix is tailored to the device. Just one example, the Netflix iPhone app doesn’t handle television well, allowing you only to play the next show in a season. The Apple TV, by contrast, provides a list of episodes for each season.

Netflix on the Apple TV provides a half-dozen ways to browse content, as well as search. It’s nicely laid out, and works well, though not as smoothly as the iTunes Store. Movie icons take longer to load, and there can be a slight pause when navigating some menu options as the Apple TV “Accesses Netflix.”

Playback, however, is good. It takes about ten seconds for a video to start, better for me than running Netflix on a Core Duo Mac mini. Video quality doesn’t seem quite as good as Apple TV rentals, but, again, nothing to complain about, which sadly, isn’t the case with local content.

Streaming Local Content

Curiously, Apple chose to sort local content for home sharing by the computer it resides on, rather than by content, as with the previous Apple TV interface. It’s annoying, and there’s no real reason for it, since a pool of all available content would be much more usable.

Once you select a computer, the familiar, if dated, Front Row/Apple TV interface is presented. On a good note, streaming performance has been excellent, despite my efforts to stress the local network. I’d planned on using Ethernet to connect the Mac mini to the Apple TV, rather than relying on the 802.11 b/g of the older computer, but there was no need. So far, access is quick and content streams without issue.

Unfortunately, some of the other aspects of the Apple TV could be better. While photos load quickly, home movies don’t show up at all, neither locally or from MobileMe. That’s seems odd, since the Gallery app for MobileMe does play movies on other iOS devices.

Like photos, music seems an afterthought on the new Apple TV. It works, and streaming sounds great, but the means of access seems quite basic. The rest of the content (YouTube, Radio, flickr, etc.) seems not to have changed much. It’s all quite functional, but nothing special.

While opening the Apple TV to the App Store might substantially change the purpose of the device, its focus now appears to be video. From presentation to delivery, you get the feeling that most of the work went into making the Apple TV a top-line, video streaming device. With AirPlay coming soon, it’ll be even better at video. In short, the Apple TV seems to have finally lived up to its name.

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Just a fifth the size of the previous model, the new Apple TV dispenses with a 160GB mechanical drive and Pentium CPU, in favor of a rumored 16GB of flash and the Apple A4. It will also be running iOS, but is not currently capable of accessing the App Store.

However, Steve Jobs did tell Businessweek that “when the time is right, Apple could open an App Store for the TV.” That careful non-confirmation has recently been buttressed by an obscure profile at LinkedIn. As reported by MacRumors, the profile describes the position of an intern as an “Apple TV Apps Engineer.”

Perhaps the inevitable jailbreaking of the new Apple TV will turn up evidence of software hooks for the App Store, but even if it doesn’t, new functionality includes Netflix streaming, at least for U.S., and now Canadian subscribers. Additionally, AirPlay will allow computer and iOS device owners to stream music, photos, and video to the new Apple TV.

Unfortunately, owners of previous versions will be getting neither apps nor Netflix, and yet now might be the best time to buy a first-generation Apple TV.

For those of us who bought the new Apple TV, the wait is almost over. My own Apple TV, ordered at 11:20 AM PDT, still lists “September” as a ship date, but I expect that will soon change. I plan to use it as a kind of “front end” to the Mac mini next to the TV, replacing the seemingly abandoned Front Row, and providing easy Netflix access to my Mac home theater.

If you’ve ordered an Apple TV, has its shipping status changed yet? If you haven’t ordered one, what would you like to see in a review?

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You Want to Save Money

The old Apple TV with 160GB hard drive is only $149 on clearance, down from $229. That price is $100 less than the iPod Classic, also with a 160GB hard drive. If you want to connect an iPod Classic to your TV or even stereo, you have to buy the component or composite cable ($49), and if you want to pause your music to answer the phone while sitting on the couch, you’ll also need the universal dock with remote control ($49).

Buying the 160GB Apple TV will actually save you $200. Yes, yes, it’s $50 more than the new Apple TV, but even still, it’s a bargain home theatre component.

You Want Single-Device Usability

To play anything on the new Apple TV, you have to stream it (there’s zero local storage, remember?). If you want to put on some music, you have to turn on your computer, grab your iPad, etc. With the classic Apple TV, your music is already there. Just turn it on and pump the jam. 160GB holds fewer movies than music, but at 1GB or so each, you can still get plenty of movies on the device before you need to start streaming from a computer.

You Have an iPhone

Apple’s Remote app for iOS is the perfect way to control your Apple TV. Instead of scrolling through the list of artists, albums, etc. on the screen using the little plastic remote, you can jump right to the music you want, navigating visually. You can even use it to type into search fields for YouTube.

Yes, I realize this works with the new Apple TV, too, but it definitely isn’t a knock against the old one.

You Have an Older TV

If you have an older AV receiver or TV, you may not be able to even use the HDMI output from the new Apple TV. The previous Apple TV has component video output in addition to HDMI, so you won’t need to get a special converter cable.

You Like to Tinker

The previous Apple TV has a pretty active community involved in hacking around with it to add features. It’s fairly simple to use a patchstick to enable filesharing, install Boxee, add a weather channel, use an external USB drive and other such things. I have a pretty large collection of movies in iTunes, so I made my Apple TV into a 1TB monster that can hold my entire library (currently at 700GB).

You Love Music

I know everyone gets all excited about the video features of the Apple TV, but I’ve told more than one person that the real reason to get an Apple TV is to play music through your stereo. It’s an iPod for your TV. I still can’t get over having 2000+ albums at the touch of a button. Of course, I grew up buying vinyl LP’s and making mix tapes on 1/4″ magnetized tape.

I graduated to a 400 disc CD changer at some point, but the previous Apple TV is the best way to play music on your stereo that I’ve ever used. A Sonos system would be nice, but the Apple TV is a lot cheaper, and works with any iTunes DRM-protected video content that you have.

You Don’t Have a Netflix Subscription

For a lot of people, the convenience of being able to play your music library without turning on your computer will be enough to offset the loss of Netflix and TV rentals, but it’s hard to sell Netflix as a feature to people without Netflix subscriptions.

What do you think? Will you buy an old Apple TV or wait for the new one to ship in a couple of weeks?

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Since the iTunes Music Store was announced in 2003 with only 100,000 tracks available for purchase, press and bloggers have been asking, “when will Apple release a subscription model?” Each time a new music service pops up from Microsoft, RealNetworks and Sony, the question is asked again. Jobs repeatedly insists people want to own content, and a subscription plan doesn’t allow for that. The thing is, when he makes a claim like that, it suggests Apple has considered the idea and decided it will never go that route.

If you look back at Jobs’ past quotes about mobile phones, tablets and even cloud services, he shot those ideas down publicly to the point where the person asking feels like an idiot. “The iPod is not a good device for watching video,” he said in 2004, but the iPod Video came out a year later as a “revolutionary way to watch video on the go.” Actions speak louder than words, and in the case of the Netflix partnership, Apple has given us two directions to ponder for the rumored Apple iTunes Subscription Model.

Netflix is a subscription service. You pay a set dollar amount each month, and Netflix mails you a DVD that’s in your queue, as well as providing access to Netflix Instant, which allows anyone with an Internet connection and a computer or gaming device to watch streaming movies any time. The selection of videos available to stream isn’t great, but it’s steadily improving. Over the past two years, Netflix has grown the Instant accessibility by partnering with hardware makers like Sony televisions, Panasonic’s Blu-ray players and Microsoft’s Xbox to make streaming available via gaming devices.

The inclusion of Netflix on Apple’s latest television appliance was a surprise to me, mostly because it shut down any rumors that Apple may one day offer a subscription service. Including Netflix on a web-connected television appliance isn’t a lure for potential buyers, since most of Apple’s potential Apple TV customers have one or more devices in their home capable of using Netflix Instant (computer, iPad, Blu-ray player, Xbox, etc.).

Did Apple add Netflix simply to play catch-up, or was it only Jobs’ way of saying, “Here’s a subscription service. Trust us, we’re not going to do one”? What about movies Apple wants you to rent for 99 cents through iTunes that you can now get through Netflix?

My far-fetched theory is that Apple is keeping an eye on Netflix and how consumers use this subscription model. I’m pretty sure that Apple realizes that the selection of new releases available within Netflix Instant is mediocre, and this is only a strategic partnership to help sell Apple TV to the consumers who prefer to use one device for all television and movie viewing, and Apple fans who don’t mind having four devices that all include the same access.

The day that Apple realizes it’s losing sales to Netflix Instant or it finally sees a viable business model for offering a better subscription service than Netflix, we’ll see this feature yanked from Apple TV. Of course, it’s not like Netflix is a music subscription service. Those rumors about an Apple music subscription service can keep flowing no problem.

The rumors that Apple TV would be getting an App Store treatment excited a lot of people, myself included, because app developers like Netflix and Hulu could easily build apps in the SDK and circumvent Apple’s built-in features. We all know Apple can do whatever it wants with its store, but with both apps available on the iPhone and iPad, Apple shows it doesn’t really care that using these services is just as easy as renting a movie the Apple way.

Apple’s partnership with Netflix indicates the company isn’t interested in the subscription business right now, but as soon as this becomes a priority, you can bet that Netflix won’t be an Apple TV feature anymore.

The home page shows you different categories, then lists a couple movies from each. One of the interesting things about the app is that the tabs on the bottom are translucent, so you can see the content below them when you’re scrolling through a list. From what I can tell, the application is a browser that just loads a custom mobile site. When your playback times out, it’ll ask you if you want to resume. It also does this when you switch back to it from another app using fast app switching in iOS 4.

Playback loading is what you’d expect from a streaming app. Not terribly fast, but not terribly slow. The app also supports streaming over both Wi-Fi and 3G, which should be a boon for on-the-go movie-watchers. You can’t manage your mail queue from it, only your instant queue, which is a bummer.

The iPad version of the Netflix app had it’s share of strange issues. It’s unfortunate that those issues have carried on into the iPhone app, and some have gotten worse. Scrolling is jerky and nowhere near as buttery smooth as we’ve come to expect from iPhone apps. I also experienced a bug where the tabs would partially vanish, staying half visible after ending playback. However, searching is fairly snappy, and it hasn’t yet crashed.

Overall, Netflix for iPhone is about the same as Netflix for iPad: It works, but it’s not polished. Hopefully, Netflix will work to address this in future updates. Netflix does require a subscription to use, which costs at least $8.99 a month for a standard subscription. There is a free one-month trial.

Related GigaOM Pro Research: Netflix Company Profile

The iTunes Store is a Dead End for Video

Apple sits in an enviable position in the smartphone market, has pushed the tablet category into the mainstream consciousness, and its Mac lineup is selling like hotcakes. It’s the king of music retailing as well, but movies and TV have been somewhat anemic. The iTunes store does not have the dominant position with video content that it does with music. The slow buildup of the video category has led Steve Jobs to refer to the Apple TV as a hobby: something for Apple to continue to dabble in while the market matures.

[inline-ad align="right"]So why has it been so slow? Because Apple was able to reach the top music retailer spot so quickly, media companies have been reluctant to concede control of electronic distribution to Apple. They feared the same fate as the record labels: their electronic plans dominated by a powerful distribution partner. NBC Universal even pulled its content from the iTunes store for a time during a public spat with Apple. NBC eventually returned, but the industry has still been slow to move on ideas like subscription services or lower pricing through iTunes. The pricing model for video content in the iTunes store has been static for years, and it’s not working.

The entire model for iTunes Store is based on owning the content you purchase. Unfortunately, the video content on the iTunes store is lower quality than what you can buy for the same price elsewhere. Why would anyone want to own mediocre quality content? The future is streaming for convenience and ownership for full HD.

How the iPhone Changes Everything

The explosive growth of the iOS platform (iPhone, iPod touch, and now iPad) has the potential to change Apple’s relationship to media partners. While there has been little change in the iTunes Store, there have been some innovative efforts in providing television shows and movies over the Internet.

iPhone apps provide a way to bring together these two worlds. Media companies can develop apps to bring their properties to consumers, while still retaining control over pricing and establishing a direct relationship with the consumer. The Hulu and Netflix apps are free in the App Store, but require a paid subscription to the respective service to access content. Of no small significance is the fact that Apple does not get one penny from these subscription services. And Hulu and Netflix know exactly who their customers are and how to reach them. App Store developers will be quick to tell you that one frustration is that they have no idea who is buying their apps, and no way to respond to people who complain in App Store reviews. Apple simply does not provide that information to developers.

You can see why media companies would be far more eager to pursue this path where they control pricing and have direct contact with their customers.

An End Run on the iTunes Store

In this scenario, Apple will miss out on a percentage of video content sales. It would be convenient to leap to the conclusion that this would upset Apple and it might take steps to prevent this from happening, but content sales isn’t what Apple is after.

I think the more likely scenario is that Apple continues to view the iTunes Store as the means to an end: selling more iOS devices. While the iTunes store contributed $1.2B to Apple’s revenue this past quarter, I suspect only a small portion of that number comes from video content. In comparison, Apple pulled in $2.17B on the iPad in the same quarter. I would bet that the margins are a lot better on the iPad than the iTunes Store as well, contributing far more to earnings than content sales. Apple will willingly give up growth in content sales in order to make sure that the App Store remains the preferred software distribution channel and iOS devices are the preferred hardware platform for media companies.

Great for Media Companies, Great for Consumers

The big media companies obviously win in this scenario. I think it also opens the stage for small media companies and startups to grow, because the App Store is a pretty level playing field.

Consumers also benefit. More choice, more pricing models, more innovation, more content. The opportunity provided by apps, multitasking in iOS 4, and remote control devices like the iPhone, iPod touch, and the new Magic Trackpad will create a great platform for developers and media companies to deliver existing content and innovative new features. Think Chopper 2 on the TV, controlled by an iPhone, and Scrabble on the big screen with iPod touch tile racks, and new apps that are designed to be controlled by a remote or Magic Trackpad. Maybe someone will finally figure out how to create compelling interactive content for movies that does not get in the way of actually watching the movie. Wouldn’t that be amazing!

Apple TV is Dead, Long Live Apple TV

The current Apple TV, a device where you buy and manage all your video content through the iTunes Store, is dead. But the next Apple TV, where media companies can produce apps to deliver their content to consumers, will be huge because it opens the marketplace back up to innovation again. I can’t predict if Hulu and Netflix will continue to ride the wave and hold their leading position, but I can guarantee that in an open market, someone will figure out a model that works for consumers. And Apple will be there waiting with the best devices for consumers to access that content.

Related GigaOM Pro Research: TV Apps Market to Hit $1.9 Billion by 2015