Apple co-founder Steve Jobs, at a presentation to reporters and investors on Wednesday, also rolled out a completely overhauled lineup of iPods and the latest version of iTunes, with a brand new logo that does away with the outdated image of a CD.
The biggest shift to iTunes is the introduction of a feature called Ping, a social networking function designed to take advantage of the popularity of websites such as Twitter and Facebook.
It's Facebook and Twitter meets iTunes. It's a social network all about music, Jobs said.
But the centerpiece of Jobs' presentation on Wednesday was Apple TV, a device the company introduced in 2006 but which never became a blockbuster hit.
Jobs once referred to Apple TV as a hobby, but made clear that the company is now ready to seriously focus on marrying the Web to TV, a combination that so far has been a minefield for the world's most creative and deep-pocketed companies.
They're beginning to shift the paradigm for a very entrenched behavior, said Altimeter analyst Michael Gartenberg who attended the event. TV viewing hasn't changed that much in 50 years. They're trying to shift that behavior the way they shifted phone behavior.
The new $99 Apple TV is a quarter of the size of the previous version -- it looks like a square hockey puck -- and will allow users to rent TV shows for 99 cents or first-run movies for $4.99 each. Apple has also struck a deal with Netflix Inc that enables viewers to stream content from the video rental site.
Unlike Apple devices that feed off iTunes, content on Apple TV cannot be purchased, only rented.
What they showed was an improvement from what they had before, but it's not as far reaching as it could have been, said analyst Daniel Ernst of Hudson Square Research.
Rival Google Inc is taking a different path with its latest offering of Google TV, which allows viewers to search and watch programs, DVR recordings and the Internet in one fell swoop.
Some new TVs will come Google TV-ready, though the plans are in the works to market a separate stand-alone device in the fall. Google is working with the cable and satellite distributors.
Apple, for its part, said it has struck rental deals with Walt Disney Co's ABC and News Corp's Fox. Jobs said, We think the rest of the studios will see the light and get on board pretty fast.
Still, some analysts, including Vijay Rakesh of Sterne, Agee & Leach, said the new music players and the Ping social network element to iTunes would capture consumers' attention more than Apple TV.
It will be the shuffle and the nano, the touch and Ping that will draw people in, he said, noting that Ping would bring iTunes customers deeper and deeper into the Apple ecosystem.
Jobs, unveiling a snazzier line of its iPod, said the company has sold about 275 million iPods to date.
Still, while Apple's iPods dominate the music- and media-player market, sales growth has moderated in recent years. Jobs has turned his attention toward the iPhone and more recently the iPad, which became an immediate success when it was launched in April.
As a result, the company has revamped its product line ahead of the key holiday sales season. Jobs called it the biggest change in the iPod lineup ever.
But Rodman & Renshaw LLC analyst Ashok Kumar said the new products wouldn't stop his expectations for iPod sales to stop growing after this year as they will be cannibalized by sales of devices such as iPad and iPhone.
We think this year the iPod category will peak and then start to decline, Kumar said.
The revised iPod shuffle has been updated to include playlists and buttons to navigate the volume, and is smaller than the previous model. He said it would play 15 hours of music, and would come in five different colors at a price of $49.
The nano, another model, now includes FM radio and can hold 24 hours of music. It will be priced at $149 for the 8-gigabyte version or $179 for the 16-gigabyte model, Jobs said.
A third revised iPod model, the touch, will include a front camera and is thinner than the current model. It will be priced from $229 to $399 depending on storage, and will be available next week.
Most everything that people were expecting came to be at least a portion of what was expected, said Colin Gillis, director of research for BGC Partners, Inc. We got an update to iTunes but we don't have cloud-based iTunes. With Apple TV, we got a good price point on it, but it's really more evolutionary than revolutionary.
(Writing by Paul Thomasch; additional reporting by Jennifer Saba, Yinka Adegoke, Sinead Carew in New York, Alex Dobuzinskis in Los Angeles, Poornima Gupta in San Francisco; Editing by Richard Chang)