You may have read recently that NBC will no longer be selling its video downloads on the iTunes store after a pricing dispute with Apple. Today, the New York Times reports that the network will be offering free downloads on its own website. Advertising you can't fast forward through will be embedded in the shows, which will become unviewable after seven days.
NBC is putting its chips on the winning square (although I doubt consumers will be patient enough to download a different player from every content provider out there.) Paid downloads will maintain a share of the market, but advertising-supported downloads will be dominant. We have already played this out with cable: advertisers are willing to outbid us for our eyeballs... that's a proven. I hope I'm wrong, but I fear that Apple is too attached to providing a pristine customer experience to recognize this fact and offer advertising supported content on iTunes. If they don't, they will get left behind.
Also, for some time now Netflix has been offering its subscribers downloadable movies at no extra charge. I have not been able to sample this since currently it is available only on the PC side, but friends who have tried it praise this service. If Apple can't match this offering, they ought to partner with Netflix and host it on AppleTV.
Finally, when I was at Siggraph, the 3D convention, Apple was recruiting 3D animators at the job fair. Just this morning I saw an ad they were running for a games producer. The fact that Apple is producing games themselves, rather than outsourcing it to a strategic partner, indicates to me that Apple is very committed to games. I would expect that both the iPhone and the iPod could become PSP-like game platforms, and the AppleTV could also become a game console.
The reason that AppleTV hasn't been a runaway success is because there simply isn't enough content to justify its price tag. If the AppleTV starts running free TV, movies on subscription, and a great collection of games then it could become a breakout hit that defines the Digital Living Room revolution.