The original Apple TV, announced in 2006 and released in early 2007, was Apple's first take on providing media streaming to the living room. Four years and three software updates later, the Apple TV remained just a "hobby," to use the word repeatedly uttered by Apple executives to describe the product. With the release of the new second generation Apple TV, Apple has dramatically changed the device's technology while also redefining the product's target audience. It's an enormous change with a huge amount of upside, but until the device becomes more flexible it's still a work in progress.

The big picture

Before digging into the details of what the Apple TV's software does and doesn't do, it's worth reviewing the hardware itself. Almost the only thing the new Apple TV has in common with its predecessor is its name: The previous silver and white model was essentially a stripped down Mac powered by a single core Intel processor and running a modified version of OS X 10.4. With its included hard drive, it had a bigger footprint than a Mac mini, consumed a lot of power, and threw off a whole lot of heat.

Contrast that with this new black box, a quarter of the size of the original Apple TV, running a version of iOS just like the iPhone, iPad, and iPod touch, and powered by the same Apple A4 processor used in the iPad. The new Apple TV relies on solid state storage (8GB worth, according to iFixIt) rather than a moving hard drive, sips power and runs cool to the touch.

Apple TV

To top it all off, the previous Apple TV cost £223. This new, vastly more advanced model will set you back £99.

As usual there is a price discrepancy between the US and UK. In the US the device was previously $229, and now costs $99. Bearing in mind that the US price doesn't include sales tax, the UK price before tax should be comparable with the US pricing, but excluding VAT the UK price is £84.26 (or $129.76) which leaves UK shoppers paying around £20 ($30) more. Apple claims the extra cost "includes approximately £23 VAT, duty and levies".

The Apple TV is 98mm square, 23mm high, and weighs 270grams – or, to put it another way, it's really small. On the back you'll find a plug for the included power cable, an HDMI port capable of carrying HD video and 5.1-channel digital audio to your TV, an optical digital audio port for connecting directly to a surround sound audio system, a 10/100Base-T ethernet port (in case you prefer wired networking to the Apple TV's built-in 802.11a/b/g/n WiFi), and a micro-USB port that Apple says is reserved for service and support (at least until some industrious people came up with a way to use it for other purposes). You'll need to supply your own HDMI cable for use with the Apple TV, because Apple doesn't supply one. And if your HDTV only has support for component inputs, and not HDMI, you're out of luck.

Along with the major hardware upgrade to the hardware, this new Apple TV comes with a shift in Apple's philosophy about what the Apple TV is for. If we had to sum up the original Apple TV philosophy, it would be that the device existed as a way to take the iTunes content you stored on your computer and play it back in your living room, and also facilitate the purchase and rental of additional items from the iTunes store.

The new model, in contrast, won't let you buy stuff at all. The only financial transactions that happen on the box itself are rentals – of movies and at least in the US, TV shows. It's not yet clear how the film and TV rentals will translate in the UK. Apple has not yet confirmed any deals with UK production companies so it seems unlikely TV programmes will be available to rent at launch, at least not at the price on offer to US audiences.

Apple TV

Since buying stuff from iTunes requires you to download the file and store it somewhere, you've got to do that from a Mac or PC running iTunes. (The Apple TV will play those purchases back, of course, but you must make the purchase on your computer.)

Without a hard drive, there's no way to sync that content from your computer to the Apple TV, so playback requires a Mac or PC with iTunes 10.0.1 or later to be running to watch anything not coming from the Internet. This is a big change for older Apple TV owners, who may have dumped lots of content onto the Apple TV's drive and preferred to shut down their computers before sitting on the couch for the evening's entertainment. It also marks the first time that Apple has truly embraced using its own hardware to facilitate the playback of paid video content from a service other than Apple, because the new Apple TV offers full support for Netflix video streaming.