Is Apple TV Moving Beyond ‘Hobby’ Status?

When Apple (s AAPL) TV was launched in 2007, Steve Jobs said he expected it to be one of the four legs of the company’s business, making it as important as the iPhone or even its iTunes. Despite high early expectations, it wasn’t long before the device was demoted to “hobby” status by the Apple CEO. But that could soon change, as the New York Times has uncovered evidence that Apple is looking to make a serious business out of online video with a major update to its Apple TV product.

According to the Times, Apple is working on updating its Apple TV software and has hired several user interface and graphics designers with a background in broadcast design in television to create a “completely redesigned interface for it.” Not just that, but that work on the next version of the product is not happening in the existing Apple TV group, but in a new design group within the company, which could signal that the company plans to release a totally new product rather than an update to its existing Apple TV.

The new product could use iOS, which is already used by the iPhone and iPad, as its operating system, though it’s not certain Apple will go in that direction. If it does, however, the new Apple TV could allow developers to create apps for video channels, or even reuse apps that have been created for the iPad to display video on their TVs. Since the launch of the iPad in April, a number of video publishers — including Netflix (s NFLX), ABC (s DIS) and now Hulu — have created popular video apps to run on the device.

Of course, reports of a new Apple TV aren’t entirely new; Engadget reported in late May that a new video product incorporating iOS and similar hardware to the iPhone was in the works. According to that report, the new Apple TV would use flash memory rather than the current product’s dedicated hard drive, would rely on streaming (rather than downloads) for video, and would be priced at just $99.

Apple’s hope, especially if the new Apple TV is sold for $99, is that it can make up for the low price with app sales and sales of digital media over the device. The company has been in discussions with content owners about different possible ways to do that, including lowering the price of TV shows sold through iTunes to 99 cents. The company has also reportedly considered launching its own subscription video service, offering access to multiple TV shows for $30 a month.

Reports of a new Apple TV are surfacing at the same time that competition around the connected TV space is heating up. Google (s GOOG) launched its connected TV operating system at its I/O developer conference in May, with product planned to ship later this year, just in time for the holidays. Best Buy (s BBY) is getting into the digital video space by licensing Sonic Solutions’ (s SNIC) RoxioNow platform, and Wal-mart (s WMT) bought Vudu earlier this year to pursue its own digital video strategy. Not to mention, all the major consumer electronics manufacturers, including Samsung, LG and Vizio are busy rolling out broadband-connected TVs and Blu-ray players with different digital video services built in.

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