Watch out Google, here comes Apple TV 2

Engadget is reporting that Apple TV is in line for a big makeover that will see the device being sold for just $99.

$99 for an Apple device? Not likely we say, but according to an Engadget source, the project was well underway before Google's TV announcement at I/O.

The new Apple TV is said to be heavily based on the next-gen iPhone build, complete with iPhone OS 4.0 and limited on-board storage. That's because Apple is planning on a cloud-focused service with streaming content via a revamped iTunes.

It will be capable of Full 1080p HD output and, if you do want to use local storage, you can hook it up to your Time Capsule. The report also suggests that there should be some sort of App Store compatibility, although quite how that will work on a big screen is open to debate.

If Engadget's source isn't telling porkies then this will be a great little device where the emphasis will be on paying for the content rather than paying for the hardware. And, because it's Apple, it will sell by the shed-load. You only have to look at the mayhem at the Apple Store today to realise that when Apple launches a new toy, it knows how to create a buzz.