By Paul Gagnon – Director, North American TV Research, DisplaySearch

Apple announced an update to its Apple TV product, which has been referred to as one of Steve Jobs’s hobbies. It will now be 1/4 the size of the previous generation, and 1/3 the price at $99. With no local storage, everything is streamed to the device via wired Ethernet or built-in 802.11n Wi-Fi. It has the requisite HDMI output along with optical audio and USB, and since the power supply is integrated, there’s no power brick either.

In the past, Apple TV was a pretty slick device that allowed users to seamlessly connect their TVs to iTunes content. And that was the fatal flaw that kept Apple TV from becoming a success: limited access to new content. iTunes has always had new movies, TV shows and music available for purchase, but the variety of content and the lack of true streaming meant significant limitations placed on Apple TV’s utility.

So will I buy a new Apple TV for $99? Yes. Probably two of them: one for the living room and one for the bedroom. Here’s why.

I like the interface a lot and buy all of my music through iTunes, but not my TV shows or movies. In fact, I prefer to rent my movies and DVR my TV shows since I refuse to pay for something I can watch for free on broadcast TV. In the past Apple has charged $2 or more to buy these TV shows, which was far too much. But I hate paying nearly $100 a month to my pay-TV provider to watch a few dozen shows on a handful of channels. I’d much rather just pay for access to the channels I watch frequently or just the shows, but at the $0.99 per show Jobs just announced, it’s still too pricey, especially for content from the major networks. But the battle for the living room between traditional media/CE companies and new age internet/IT companies is just heating up.

I have been looking for the utopia of a single, discreet device that aggregates all of my content from every device in the house so that I can watch it on my HDTV, the best screen in the home. All previous devices I have tried in the past, from HP’s Entertainment Notebook PC to Sony’s latest Blu-ray player with BRAVIA internet video, have been disappointing in some way, usually in ease of use, set-up and seamless integration. The biggest problem has been accessing my personal content. The full-fledged PC approach resulted in poor performance and limited ability to navigate content easily. The networked Blu-ray player from Sony worked brilliantly for Netflix and their other content partners, but the DLNA access to my home server and PCs has been a problem. DLNA was a nightmare to set up and use in the best of circumstances, and completely unusable in the worst.

The key for me is that it has to work right away, with limited and easy set up, and provide access to the content I use most frequently. I am technology-savvy, but I have little patience for CE devices that are hard to use. With the new iOS 4.2 coming in November for the iPhone (we own two) and iPad (which I do not own, yet) and the built-in AirPlay feature, the Apple TV will be able to wirelessly stream movies, photos and videos from the iPhones, along with the same content from my PC.

I greatly appreciate the seamless way Apple integrates their devices and services; while they cost a little more, my experience has shown me that there is value to this. I buy all of my music through iTunes, and stream movies from Netflix (which the Apple TV will support), but have lacked the ability to easily watch my own photos and videos, let alone stream music to the living room. Apple TV seems like it will do all of this, and use an excellent, beautiful user interface I am familiar with. I may even start buying some movies from iTunes if the release window is better than Netflix currently is for streaming. And I’ve still got a Blu-ray player for the absolute latest movie releases on DVD.

Now if I can just find a way to cut the cable altogether and not miss out on time-shifted free broadcast shows and cable network shows. Will Google TV devices from Logitech and Sony be competitive in both price and performance? Few details have emerged. Can a coalition of companies be as seamless and effective as a single company? I hope the content partnerships start getting sorted out soon and that the cable and satellite companies find a way to work harmoniously in the coming digital TV revolution. The alternative is ugly; just look at the pain the music industry has endured for the past decade.