The big gadget news Tuesday morning was Netflix’s entry into the set-top box market, with the inevitable comparisons to Apple TV.

So how do the two devices stack up? Technically, it’s an apples and oranges comparison. One box is a special purpose computer with a small (40 GB) or big (160 GB) hard drive built-in. The other is designed only to stream video to a TV.

But to consumers looking to watch their favorite movies and TV shows on demand, technical differences will mean less than the cost of the device, the cost of the service, and whether the titles they want to see are available for download.

In terms of content, Netflix (NFLX) seems at first glance to have a big edge, with 10% of its 100,000-plus library available for download. Unfortunately, that 10% is mostly older movies (5 years or more) and TV shows, with some indie flicks thrown in.

Apple (AAPL), by contrast, has a much shorter list — in early May it finally delivered the 1,000 movies Steve Jobs promised back in January. But thanks to its latest round of deal-making, many of those titles are new releases, available the same day they come out on DVD. [Reader milo points out that those 1,000 titles do not include TV shows, whereas Netflix's 10,000 do. Apples and oranges, again.]

Apple also has an edge in terms of quality: 720p versus 480i; Dolby versus mere stereo. Also, some of the Netflix titles that should be wide screen aren’t properly formatted.

But the price is right on Netflix. The player, made by Roku, is less than half the price of the entry-level Apple TV (and a lot less than the $329 high-end model). And if you’re already a Netflix member paying monthly dues, you get unlimited downloads for what feels very much like free.

Given the new competition, it will be interesting to see whether Apple rethinks its current pricing scheme: $2.99 to $3.99 to rent, $9.99 to $14.99 to own.

Now that Apple TV offers movie rentals in high definition, the question naturally arises: how does Apple’s HD stack up against, say, a Blu-ray disk or the HD content offered by the cable networks?

To get at an answer, the folks at iLounge have done a favor for the rest of us (who don’t necessarily have an Apple TV, a Blu-ray player or even an HD TV): they’ve posted side-by-side comparisons of the latest Bruce Willis vehicle, “Live Free or Die Hard”, viewed on four systems.

• Blu-ray
• Apple TV
• HD video on demand
• Standard DVD

If you’re in the market for an Apple (AAPL) TV set top box, you owe it to yourself to read Charles Starrett’s full review. But here’s the money quote:

While the Blu-Ray version was the clear winner of the bunch, we were surprised by how well the Apple TV fared in comparison to the other formats we tested. Its weakest performance was in the straight shot-for-shot resolution test, where we looked at how all four devices displayed a scene with fine details. (link)

That said, Starrett points out that resolution numbers don’t necessarily mean as much as compression, color, motion, aspect ratio, download time and price. His conclusion:

From where we stand, frequent and quality-sensitive video watchers will find Netflix or Blockbuster to be better month-to-month values for HD video rentals than Apple TV or on-demand cable services, while Apple TV provides an option that’s in the upper middle of the pack on quality and the best on convenience, so long as you’re willing to pay the $229-$329 cost of entry. The question is: are you?

Photos reprinted by kind permission of iLounge.com. For lots more images, available full size, see here.

Good things come to those who wait.

Steve Jobs may have disappointed his fan base — and Wall Street — by not having more to offer at Macworld last month. But whether by design or by way of compensation, the folks at Apple (AAPL) have been extra busy in the weeks since.

Last week the company released the new 16 GB iPhone that many Apple watchers had expected to see at Macworld, as well as the 32 GB iPod touch that most had not.

Yesterday it released a major update to Mac OS X Leopard that fixed a slew of bugs and made some cosmetic changes (especially in the dock and stacks) that users had been begging for.

Today we got a two-fer:

• Aperture 2, a major upgrade of Apple’s high-end photo editing and management software, a favorite with professional photographers, and
• Apple TV “Take 2“, the free upgrade that allows movie rentals and direct downloads from the iTunes store. Jobs had promised that it would be available within two weeks of Macworld. It arrived in four.

What’s next? Rumors abound that there will be an Apple event before the end of the month at which the company could reveal everything from the iPhone software developers kit promised for February (but also rumored to be delayed) to $100 price cuts in the iPhone and iPod touch lines.

Last July, Apple (AAPL) announced that revenue from the iPhone would be recorded in an unusual way. Like Apple Care and Apple TV, iPhone sales would not be booked when the device was sold — as they are for a Mac or an iPod — but spread out over the life of the iPhone (set, somewhat arbitrarily, at two years).

More than seven months have passed and nobody — not the analysts, not the investors, and certainly not Wall Street — has quite wrapped their mind around what this bookkeeping oddity means for Apple’s bottom line. That’s in part because it’s complicated, and in part because Apple hasn’t provided all the data you would need to fully assess its impact.

But as we enter the fourth quarter of iPhone sales, those so-called deferred earnings are adding up, and some professional Apple watchers are starting to realize that their impact could be substantial. In fact, if the company hits its iPhone sales targets, these earnings could become a windfall — a revenue bomb that explodes to the benefit of shareholders.

The rules by which Apple records revenue from iPhone sales are spelled out in the 10-Q filed with the SEC on Aug. 8, 2007:

The Company began shipping Apple TV in March 2007 and iPhone in June 2007. For both Apple TV and iPhone, the Company may provide future unspecified features and additional software products free of charge to customers. Therefore, sales of Apple TV and iPhone handsets are recognized under subscription accounting in accordance with Statement of Position (“SOP”) No. 97-2. The Company recognizes the associated revenue and cost of goods sold on a straight-line basis over the currently-estimated 24-month economic lives of these products. Costs incurred by the Company for engineering, sales, and marketing are expensed as incurred. (link)

Sounds straightforward enough. But because of the way Apple reports its earnings and its costs of goods sold, it’s not so easy to track. And to the dismay of Apple shareholders, the fact that these deferred earnings are piling up seems to have gone right over the heads of the institutional investors who have driven Apple shares down nearly 75 points since December.

One Apple investor who has been beating the deferred revenue drum is Stephen Rosenmen at Seeking Alpha. He’s published three articles on the subject since Apple’s Q1 earnings report, including one posted today in which he takes a stab at estimating how big Apple’s hidden revenue backlog has grown:

To date these deferred revenues have become substantial: current quarter revenue deferred iPhones and iTV (Apple doesn’t separate the two) are $816 million with a total of accumulated deferred revenues of $816 million + $624 million, or 1.4 billion dollars in future revenues to be spread out over approximately the next 7 quarters. That doesn’t include the rest of the also substantial AppleCare and other deferred revenues which together with the iPhone/iTV create a total deferred revenue base of 3.288 billion. (link)

As Rosenmen points out, those $3 billion and change are not going away. They are like backordered Boeing jets or offshore oil reserves — the equivalent of money in the bank. Moreover, the quarterly revenue from iPhone reserves climbs exponentially as iPhone sales grow — each quarterly payment consisting of 1/8 of that quarter’s revenue plus 1/8 of the revenue of each of the previous seven quarters.

The participants at The Mac Observer’s Apple Finance Board have been harping on this theme for weeks now, none more vehemently than the investor who calls himself Dawn Trader. He’s looking for the bomb to explode in eight or nine quarters:

As we move into the latter quarters of FY 2010, even assuming modest growth in unit sales, the iPhone may be delivering as much as $1.00 eps per quarter from current and deferred revenue recognition not including the monthly service revenue from AT&T.

Below the fold, Rosenman’s chart showing the growth of deferred revenues over the past five quarters (the exclamation points are his):

Given the excitement with which the reinvention of Apple TV was greeted when Steve Jobs announced it two weeks ago at Macworld, it’s surprising how little critical attention has been paid to the fact that the free update he promised to deliver by Tuesday has run into a snag.

The news was slipped into an Apple (AAPL) press release about the Macbook Air that was issued on Wednesday. Apple TV’s second coming is now due “in a week or two” or “within two weeks,” depending which paragraph you read.

Why the delay?

The update, according to the release, is simply “not quite finished.” But that hasn’t stopped outsiders from speculating that there might be more going on.

Could it have something to do with that awkward moment in Jobs’ Macworld keynote when he went to demo Flikr photos on Apple TV and the giant screen went blank? (”I’m afraid Flikr’s not serving up the photos today,” he joked, but you know that inside he was fuming.)

Or could the hang-up be, as Valleywag’s Jordan Golson speculates, some last-minute wrangling with the movie studios? If that’s the case, a week or two may be optimistic.

I’m reminded of Daniel Eran Dilger’s lovesong to the new Apple TV posted in Roughly Drafted last week, in which he praised it as “a full fledged, self contained media computer for watching and ordering Internet content” and bid good riddance to Blockbuster.

With the iPhone now running along smoothly at top speed, Apple now has the opportunity to fire up Apple TV as its fourth engine [of growth]. This time, the professional naysayers only have a couple weeks to disgorge their rivers of fear, uncertainty, and doubt before Take Two hits the public’s hands and shows up their analysis as the stupefying nonsense that it is. (link)

Apparently Apple saw fit to give the naysayers another week to two.

The Macworld Conference & Expo, Silicon Valley’s largest technology trade show, opens Monday. But the moment everyone is waiting for comes Tuesday morning, when Steve Jobs makes his annual keynote address at San Francisco’s Moscone Center.

Jobs has set a high bar for himself. At Macworld 2006, he introduced the first Intel (INTC)-based Macs — sparking a burst of sales that nearly doubled Apple’s (AAPL) market share from roughly 4% to something approaching 8% (link). At Macworld 2007 he unveiled not just the all-but-forgotten Apple TV, but also the iPhone — a device that in nearly everybody’s book turned out to be the machine of the year.

What can Jobs do to top that?

There’s no shortage of speculation. The Apple rumor machinery has grown so elaborate that for the second year in a row, Ars Technica’s John Siracusa has published a keynote Bingo card (available in PDF format here and in iPhone format here), with boxes to be filled in as Jobs makes his announcements, introduces his guests and trots out his trademark rhetorical flourishes. (The rules of the game are spelled out here.)

Nobody has yet shouted out “Bingo!” in middle of a Steve Jobs presentation — a moment brilliantly anticipated in IBM’s buzzword Bingo TV ad (link) — but this could be the year.

Some of Siracusa’s boxes are obviously more important than others. A couple (Mac Pro and Xserve) were preemptively filled last week, and there are a few key possibilities that he missed. Watch especially for:

• A Skinny MacBook. Probably the leading candidate for Jobs’ one-more-thing moment, it’s already been named — Macbook air, thin, nano and mini — and imagined in PhotoShop (see here, for example) by bloggers who should know better. Likely specs: 12 to 13-inch. LED backlit screen, under 3 lbs., half as thick as today’s MacBooks, 32, 64 or even 128GB solid-state flash drive, priced around $1,600.
• iPhone updates. A bump in capacity from 8GB to 16GB and maybe 32GB is expected, as well as a preview of the software developers toolkit (SDK) promised for February; we might even get a few demos from developers, like EA, who were seeded with the SDK last fall. A 3G iPhone and a Newton-type tablet are reported to be in the works, but not yet ready for prime time.
• Movie rentals. This is the item Hollywood is following most closely. It’s been widely reported that Fox and Disney are likely to make movies available on iTunes for overnight rental (at $3 to $5 for 24 hours) or for purchase for roughly the price of a shrink-wrapped DVD. If, as rumored, Paramount, Lions Gate and Warner Bros join them, the flood of fresh video content could breath new life into the Apple TV. (The Associated Press reported Sunday that Netflix (NFLX), anticipating such a move by Apple, will offer unlimited monthly video streaming.)
• DRM-free Music. Having famously championed the cause with his February 2007 Thoughts on Music memo, it would be surprising — and disappointing — if Jobs did not use this opportunity to announce a significant expansion of the DRM-free offerings in the iTunes Store, especially after the last of the major labels announced last week that they were putting their music on Amazon.com (AMZN) without copy protection.
• Microsoft (MSFT) Office 2008. No surprises here, since the reviews are already in, but an excuse for what should be the most lavish after-hours party of the show.
• The Beatles. It’s about time. Just in case, Yoko Ono’s John Lennon Educational Tour Bus mobile recording studio is making the trip from its Las Vegas unveiling at the Consumer Electronics Show to be at Macworld. A few hours after Jobs’ speech, there’s a press reception in the bus that’s co-sponsored by Apple.

You already see the flashbulbs popping, right? But is it enough? Apple’s marketing machinery is like a shark that must keep swimming or die. Even if nearly every square on the Bingo card were to be filled on Tuesday, would Jobs have delivered the kind of innovation and buzz the faithful have come to expect?

And then there’s Wall Street to consider. Apple was the high-flying tech stock of year, its share prices having more than doubled in 2007. But as a CNNMoney headline put it on Friday, “What’ve you done for me lately?” The stock fell nearly 30 points over the last two weeks, which could be taken as a measure of traders’ uncertaintly. (Or it could just be a well-timed pause to set up the Macworld effect, the short-term bump tech share prices often enjoy after a Steve Jobs’ keynote.)

No matter how high the bar, Jupiter Research analyst Michael Gartenberg is confident that Jobs will clear it. “This is a company that thinks in terms of strategy,” he says. “Do I think they’ll deliver something as disruptive as the iPhone? No. You don’t achieve that kind of disruption every week; it would be tantamount to getting into a whole new industry. But somehow Jobs always manages to meet expectations, even if the expectations are different.”

To find out how different, tune in Tuesday for Fortune senior writer Jon Fortt live blogging from the keynote at fortune.com/bigtech, video coverage from CNNMoney.com and our post-keynote analysis here on Tuesday afternoon.

With less than two weeks to go before Steve Jobs’ Jan. 15 keynote, analyst Shaw Wu of American Technology Research offers his best guess for what Apple’s (AAPL) CEO might have up his sleeve at Macworld Expo 2008. In a note to clients issued this morning, Wu predicts:

• Blu-ray. Citing unnamed sources, Wu says that Apple will outline an HD strategy that backs Sony’s Blu-ray format over the HD-DVD standard favored by Microsoft. (Although Wu hedges his bets and suggests that Apple might also use a combo Blu-ray/HD-DVD drive.)
• Subnotebook. Wu says Apple will re-enter the subnotebook space (nothing new there) but adds that Jobs may call the new machine the MacBook mini or MacBook slim. Any preferences?
• Movie rentals. Wu points out that the digital movie rental deals expected to be announced at Macworld are a departure driven by necessity, and represent a new business model for Apple. “Whether these movies expire based on time and/or usage is unclear to us,” he writes, “But we do believe that rentals are a significant change in its philosophy.”
• Speed bumps and external HDD: In the category of smaller announcements, Wu is picking up potential news related to speed bumps and or capacity bumps in current Macs and iPhones, and an external HDD storage/dock/streaming device for the Airport Extreme and the new MacBook mini/slim.
• Apple TV. Wu sees two big shortcomings in the current product: 1. no way to connect directly to the Internet for TV and movie content and 2. lack of a TV tuner. “Our sources indicate that AAPL is working on fixing these weaknesses to make Apple TV a much stronger product,” he writes, later in 2008 or perhaps 2009, but not at Macworld 2008.
• 3G iPhone. Coming mid to second-half 2008 at a higher price point, Wu says, allowing Apple to reposition the current iPhone as a “more mainstream” product.