The Apple TV just may be the missing link that will pull together the pieces of the digital living room, according to industry watchers.

People who haven't wanted to bother with downloading a movie from iTunes and watching it on their iPod or computer just may be swept into the age of the streaming movie or TV show if it means they can watch it on their wide-screen televisions.

"The way movies and music are being distributed is obviously changing, and the Internet is the new efficient way to get movies and TV shows," says Gene Munster, a senior research analyst at Piper Jaffray. "The problem is that this experience has been limited to your computer. Apple TV opens it up to your television. Even sharing movies or music between friends is going to get easier. It can wirelessly be beamed to their TVs."

Apple had teased information about the Apple TV, or iTV as it's been known for the last several months, back in September, but officially unveiled it at Steve Jobs' keynote at Macworld Expo in San Francisco Tuesday morning. Jobs announced the Apple TV, receiving great applause from the audience. But when he later announced the arrival of the iPhone, the applause was replaced by cheering and yelling from the thousands of Mac aficionados in the audience. From that moment, the Apple TV was overshadowed by the iPhone.

Munster, though, says the Apple TV will come into its own, propelling the digital living room ahead, and at some point in the future hooking up with the iPhone to create a greater personal entertainment package.

"The capacity of the iPhone will increase in the future," he says. "You'll have all of your content in your pocket and just carry it into a living room. Your whole identity and preferences are going to be on this device, and then you'll just stream it to whatever TV you want."

The Apple TV, which measures 7.7 inches by 7.7 inches, has a 40-Gbyte hard drive for storing content locally, and it's designed to hold up to 50 hours of movies and TV shows, 9,000 songs, and 25,000 pictures. It also supports 802.11b, 802.11g, and 802.11n Wi-Fi networking. The device has an Intel processor.

It's designed to handle movies, TV shows, music, photos, and podcasts. The device will store media that's downloaded from the Internet, and will hook up to the television so movies and shows can be watched there. Jobs says the Apple TV will work with both PCs and Macs.

Until now, if people wanted to buy a movie from iTunes and watch it, they had to watch it on their tiny iTunes screen or on their computer. Many have said both experiences leave something to be desired. If they wanted to watch it on their televisions, they had to connect their iPods to their TVs, and that involved plugging and unplugging cables, not to mention climbing behind the TV console every time you wanted to do it. The Apple TV is designed to make the whole experience easier.

John Welch, Unix/open-source administrator at Kansas City Life Insurance and a Mac industry analyst, says coming out with the Apple TV is an important move for the company that is so obviously putting a great deal of emphasis on the digital home and consumer electronics. Apple even went so far as to take the word "computer" out of its name. Jobs announced on Tuesday that the company would now be known solely as Apple Inc.

"Apple TV, the iPod, iLife—it's their strategy to control the home," says Welch, who is speaking at MacWorld this week. "The Apple TV is the next step in their strategy."

For Bob LeVitus, a tech columnist for the Houston Chronicle and a speaker at MacWorld Expo, Apple TV actually will be the next step in his own home entertainment strategy.

"It's really the missing link," he says. "I haven't bought movies from iTunes because it's been a hassle, but as soon as I get an iTV in my living room, I'll be all over that."