AppleInsider (via the NY Times) has stated Apple is working on a new version of their AppleTV, along with a potential new interface. Based on the report, it will be low-cost ($99) with low storage (16GB) and access to the cloud. It will be based on the iOS operating system now seen in iPhones, iPads, and iPod touches. While this could all be true, I fail to see how these changes “Get it right,” almost as much as putting out an Apple-branded television is right.

First, iOS is made for light-weight, portable devices that you touch with your finger. Televisions are not light, portable devices that you touch with your finger. In fact, I get very upset if someone tries to touch my television. Therefore, how can AppleTV utilize iOS? Apple’s next iteration may use a variation of iOS, but that is no different than 2007, when Steve Jobs stated the iPhone used a variation of Mac OS X. While I’m paraphrasing in my next statement, Steve Jobs has stated in the past that the iPad has been successful because Apple recognized in the beginning that tablets required a different interface than computers. Microsoft tried to cram a PC OS in tablets and supplemented them with a stylus. Apple went another route. When you go from a 10 inch screen you touch with your finger to a 40-60 inch (or more) screen you don’t touch with your finger, iOS seems less prepared.

With the next iteration of AppleTV, I don’t think it will be about software at all. In my opinion, the software in AppleTV is fine. Yes, I wish it had more features, like access to boxee (without the hack). However, it does 2 things well; Rent movies and watch iTunes content that you buy. To me, that’s all it was made for. Where AppleTV is failing is that Netflix does both of these things better, and you don’t have to buy the content (TV shows) to get the same benefit. 

So if it’s not about software, is it about hardware? My answer is “Sorta.” It will have to play HD content, but Apple TV does that already. My belief is that AppleTV will succeed based on services. More specifically, offering subscription-based services from the cloud. I’m not talking about putting content I own in the cloud (that would be more of a cool iPhone feature). I’m talking about providing services that will allow me to get rid of my cable company.

So what’s the problem with this now? Steve Jobs said it best when he said there isn’t a viable market, due to the fact that existing set top boxes are heavily subsidized by cable operators. 

“That pretty much squashes any opportunity for innovation,” Jobs said at the All Things D conference, “because nobody’s willing to buy a set top box.”

So how do you innovate in this space? My first thought would be to offer a service similar to Hulu Plus, where access to all iTunes television and movie content is available for a monthly fee. Streamed from the cloud and supplemented with iAds (or similar advertising), this feature would be a true innovation (“TV without the schedule”). This could be right in Apple’s lane. On-Demand television has been around for a while now, but Apple could take it to the next level.

This feature alone won’t make most people scrap cable, however. Apple needs one company in their camp to make this plan work, ESPN. Live sports is necessary for most men (and many women) to dump cable. In my opinion, ESPN is one of the reasons cable has succeeded, and it is necessary for this plan to work. It’s possible though, because Jobs sits on Disney’s board, which owns ESPN.

It shouldn’t take much to be a true innovator in this regard. Similar to movies, television is entering new territory with how it is watched and distributed. Apple has an excellent opportunity to be the leader in this space.