Big Changes Ahead for Apple TV

Apple TV looked about ready for the dustbin in recent years, especially with great free media center PC alternatives available like Boxee and XBMC. And with the recent announcement of Google TV (s goog), it sure looked like Apple’s (s aapl) foray into the dedicated home entertainment industry was pretty much done for. Not so, according to a report by Engadget.

A tipster, whose story has also been confirmed by another source very close to Apple, tells the gadget blog all about the next iteration of the Apple TV. And it’s not what you might expect. Instead of an incremental update (more storage, better output, etc.) the Apple TV will undergo a complete overhaul, and in the end won’t look much like the device people have come to know (and possibly, though not likely, love).

The next iteration of Apple TV will actually build on Apple’s strength as a mobile device company, by being, essentially, a mobile device. If the tipster and the collaborating source are correct, the new device will be based on the iPhone 4, including the A4 CPU and only 16GB of internal storage. It’ll support full HD 1080p output using those guts, though, so don’t get too worried. And it’ll also depend more on the cloud than on local storage for delivering content.

It’s being described as an “iPhone without the screen” and should only have two or three ports (video out and power). And what will you pay for this mighty mini machine? $99. That’s it. If the price point is true, then it’ll definitely give Google a run for its money. Especially if it runs iPhone OS and is as portable as it appears to be. Imagine being able to take all your TV content with you wherever you travel. Quite the proposition.

Despite the move towards streaming and away from local content, you’ll be able to use a Time Capsule as an external storage device, so all those movies and shows you’ve downloaded won’t be for naught. iPhone and iPad app integration is a definite possibility, and one that has my heart racing. Finally I can play Warpgate on a screen where I can actually make out the details of the starships! That’s provided Apple adds support to the iPhone SDK for upscaling, which I hope it will. And Scrabble with iPhones and iPads combined with the Apple TV, anyone?

This is shaping up to be the perfect storm of tech convergence within a company. Throw in some official support for a Boxee app on this device, Apple, and you’ve got a guaranteed customer right here. No word on when it will arrive, but let’s cross our fingers for a WWDC mention or two.

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