As Steve Sande has reported, Apple has discontinued the 40 GB Apple TV unit, and dropped the 160 GB unit U.S. $100.00. The large capacity set top box now sells for $229.00, the price that the now-eliminated 40 GB unit used to sell for.

Apple has continuously referred to the Apple TV unit as a 'hobby', perhaps a way to explain less than stellar sales figures. It's way overdue for some kind of update and new features; perhaps an 'all you can eat' rental program similar to the Netflix model.

At the same time, the Apple TV service has had plenty of issues: everything from failures to authenticate users, to (for the last few days) an inability to browse the HD rentals beyond titles starting with the letter 'B.'

Piper Jaffray analyst Gene Munster had recently predicted that Apple would drop the 40 GB unit and lower the price of the remaining 160 GB unit, a prediction that turned out to be spot on. Munster has also predicted Apple would add DVR capabilities to the device.

Now, if only Apple would let that mysterious USB port on the back of the Apple TV allow more storage, and fix the service glitches, a lot of people would celebrate.

Some price adjustments for rentals would also be welcome. It is cheaper to rent Blu-ray titles at Blockbuster overnight then get the same title from Apple. Yes, you have to go get it, but the picture quality is better on the Blu-ray disk.

It's hard to figure out exactly where Apple should go with this device. I don't find the YouTube content compelling on a hi-def screen. Rentals are fine, but severely limited by the MPAA rules that only let me keep the rental for 24 hours. We're starting to see YouTube and Netflix being built into both TV sets and some new DVD/Blu-ray players, which will further diminish the Apple TV value. Hopefully Apple is up to something, or the 'hobby' will remain a half-baked idea that never took off.

Thanks to Jeremy for the the tip.

On a January day in 1981, my sisters and I experienced unbridled glee when our father came home with a shiny new VCR. Imagine: Movies. In our own house. Whenever we wanted. What a world! It was an enormous, top-loading hunk of metal and plastic that I'm sure is currently at the bottom of a Pennsylvania landfill.

The VCR's arrival spawned the movie rental shop, the biggest of which (In Scranton, anyway) was Blockbuster. Today, services like On Demand, Netflix, Hulu and to a lesser extent Apple TV have forced them to re-think their business model, and they're getting into the video on demand business as well.

According to AppleInsider, Blockbuster's vice president of digital entertainment Kevin Lewis recently told Reuters that they're going to make downloadable content available to TiVo customers soon, and Apple after that.

That's all the detail we've got, but we'll assume he meant the Apple TV and iTunes. We'll keep an eye on this story and keep you updated.

Blockbuster and Netflix's stocks both took big hits based on what we just heard Steve say at Macworld. Blockbuster has dropped a handy 15%, and Netflix "tumbled 6 percent" already this afternoon (although it's jumped back a bit since then), according to CNN Money. Apparently investors are convinced that movie renters would rather fire up iTunes than run out to the video store or wait for a movie to come in on their Netflix queue.

Apple, however, isn't doing that well either after today's announcement. On the day, they've dropped almost $11 as of this writing. But while this Keynote may not quite have met expectations (lots of people were expecting Cinema upgrades, or something a little less traditional than the MacBook Air), this very likely isn't an actual downturn in the ol' Apple hype -- anyone can see that iTunes movie rentals will very likely make them a lot of money. Rather, it's probably* the result of Keynote investors selling off the stock they picked up before the event. In short, it'll take a lot more than an afternoon to see what effect today's announcements really have on stock prices.

*All of this commentary and analysis is given by someone who has little to no experience in stock trading, and should not be taken seriously by anyone.

Forbes' Brian Caulfield suggests that Blockbuster and Netflix should be very concerned about Apple's rumored move into digital movie rentals. He suggests that history has proven the iPod to be a very disruptive device. Just look at CD sales, says Mr. Cauflied, their decline over the last several years certainly proves that people want their media in a digital form and they are willing to turn to Apple for it.

While I agree that Blockbuster and Netflix should be worried, I don't think Apple will be driving physical DVD rental stores out of business anytime soon. The one advantage that Blockbuster has is bandwidth. Movies, if you want them to look good on large screens, take up a lot of space. That means whether you're streaming them or downloading them you need a pretty fat pipe to have an enjoyable experiences. Compare this with the rather small files that most songs, in MP3 format, create and you can see how the music business was greatly impacted by digital distribution whether it be legally via iTunes, or when the floodgates really opened during the freewheeling days of Napster (I was an undergrad during that time, and I can tell you that I saw many a computer running Napster. I, of course, never downloaded anything because I didn't actually own a computer in college). Theoretically it could take less time to drive to a Blockbuster and rent a DVD than it would to download the movie. This will become less of a problem, and digital rentals more popular, when broadband speeds make downloading multi-gigabyte files take a matter of moments (in some areas this is already true).

Clearly digital movie distribution, both rental and for purchasing, is the future, but sadly I think this future is still a few years off from supplanting those shiny disks we all know and love.

Since today seems to be Speculation Day™, here's another one for you, this time a little more grounded in reality than Dvorak's column about Apple dumping Mac OS X in favor of Windows. Robert X. Cringely, who has a much better track record at examining the tech industry and then predicting what companies will do, has posted today a speculative and engaging article about the potential powerhouse partnership of Apple and Blockbuster.

"Apple's Blockbuster product strategy is simple. Start with a new iPod that has video- and audio-out capability. This iPod -- which will be just as good at playing songs as any iPod that preceded it - will be more than just a video storage device. It will be a video player. No make that plural - players - a whole family of video-out iPods, some with flash storage and others with little disk drives.

Take your Video-out iPod to Blockbuster, drop it in a kiosk dock then download from the local xServe your choice of 50,000 movies. You can rent the movie or buy it and you can even choose the resolution, which may or may not affect the final price. Take the iPod home, drop it in the dock attached to your TV and watch the movie. H.264 decoding takes place in the iPod in hardware.

For Apple the point here is to sell iPods to people who might not otherwise every buy one (my Mom, for example), to bring digital downloads to people who don't have broadband or even a computer, and to make it all incredibly easy. You don't even have to return the videos when you are done, since they will automatically time-out."

Such a move would truly be a win-win for both Apple and Blockbuster. Apple could supply the back-end (X-Serves, X-Sans, etc.) to run such a system. They're already signing distribution deals with the movie studios entertainment distributors and it'd sell a significantly larger number of iPods to users. All Apple would need is the name recognition and physical locations of a chain like Blockbuster to make such a program work. Blockbuster would have a new revenue stream and enjoy the status of being aligned with a technically-savvy company like Apple. And let's not forget that Steve Jobs is now intimately aligned with Disney, a company that actually is somewhat clueful about emerging technology.

Of course this is entirely speculation, but I think Cringely may be on to something. Apple's clearly been planning something (remember, Apple tends to plan things a least a year or two ahead of an actual release). Perhaps this is it; perhaps they're finally putting the "pod back into iPod."