Chicago (IL) - After three free software updates, Apple TV remains a "hobby project" that fails to capture attention of the mainstream market. But Apple stands a chance of turning the tide with the content card. As revealed by Apple's executives, HD movie rentals via iTunes helped triple the gadget's unit sales this past year. Although the company still treats Apple TV as a side-project, the funding continues for long run benefits. Take 3, a software update that might arrive as early as next month, could bring more "TV" to the Apple TV in addition to the hardware refresh that could be in the works as well.

Apple's media set-top box - dubbed Apple TV (ATV) - has had a bumpy ride in its nearly two years of existence. Unveiled in March 2007, Apple TV was hailed as the "DVD player for the 21st century". In reality, all it did was wirelessly stream content from an iTunes library on some computer to a widescreen TV. Even die-hard Apple fans ignored the device, citing limited usefulness. Move forward one software update later, and YouTube was enabled on the gadget. But still no-one paid notice. In addition, ATV battles for your living room with Microsoft's Xbox 360 in a fragmented set-top box market with no clear leader.

Apple TV sales triple in 2008

Analysts estimated the first full year of ATV sales would be somewhere in the hundreds of thousands of units at best - a far cry from millions Apple usually enjoys. Take 2, a software update released last January, enabled online movie rentals and purchases from the device - but a limited choice library of titles became a real deal-breaker. Apple continued to persuade Hollywood studios to join the iTS bandwagon throughout 2008, however, and ATV again became interesting. Premium entertainment paired with cunning decision to limit HD rentals just to ATV (excluding computers) eventually paid off. According to Wednesday's quarterly earnings, sales of ATV tripled over past year.

As revealed by Apple's COO, Tim Cook, during the earnings call, "unit sales were up over three times versus the year-ago quarter." Readers should note that Apple does not provide ATV unit sales data in their financial disclosures - for now. Nevertheless, this uptick in sales was attributed exclusivity to HD rentals. "It is clear the movie rental business is working and there are more customers who want to try it," Cook told investors.

Still a "hobby"?

Encouraged by the results, Apple will continue funding the project for its long run benefits. "We will continue to invest there, because we believe there is something there for us in the future," he said - though added that ATV remains a side-project for now. "Let me be clear, we still consider this a hobby," Cook said. Still, if a "hobby" is to become the fourth leg of Apple's business, ATV needs new features and premium TV programming in order to appeal to mainstream market.

A hardware revision is an important component of ATV, but features enabled through software are also key. Of course, only Apple knows what new features the next software update (billed as Take 3) will enable, but that doesn't preclude bloggers from speculating. One thing is clear: ATV needs more "TV" if it is to succeed. The upcoming FCC-mandated analogue switch off for TV stations in the U.S. scheduled for February 17 gives Apple the perfect timing to unveil an updated ATV hardware and Take 3 software update. Here's our top five list of features that we think this hardware + software combo (referred to as ATV3) might deliver.