The online video landscape has changed dramatically since the AppleTV was launched last January. Along with a range of me-too video download stores competing directly with iTunes, there exists a confusing mix of ad-supported destination sites run by the television networks themselves, including Hulu, and the catch-up service, NBC Direct, complemented by desktop Internet TV applications such as Joost and Babelgum (again, both ad-supported), as well as video aggregators like VeohTV. Perhaps recognizing this, Apple CEO Steve Jobs himself has sought to reposition the company’s set-top-box away from “completing the story”, in terms of Apple’s digital lifestyle strategy, to being relegated to the company’s hobby.

And yet its still difficult, if not impossible, to get content originating from most Internet TV services onto a television, something which the AppleTV solved with regards to iTunes. So why has the AppleTV failed to ignite the market for PC to TV devices? That’s the question posed by Tom Krazit, over at CNET’s Crave.

Presuming that consumers want to watch Internet TV on a television (a pretty big assumption in itself), the AppleTV’s reliance on being connected to a Mac or PC and monopolistic ties to the iTunes Store, while making it incredibly easy to use, maybe its downfall. The iTunes Store is based on a paid-for download-to-own model, and, thanks to spats with the major film and television studios, has a limited range of content on offer. In contrast, more and more major studio content is being offered online, either ad-supported or on a rental basis.

For the AppleTV to flourish, Krazit rightfully argues that it needs live outside of the iTunes ecosystem (something which I’ve argued for right from the start). As it stands, Krazit says:

… it doesn’t come even close to fulfilling the promise of Internet-delivered video: the ability to watch anything I want, whenever I want it, without having to pay for all the useless channels I never watch. Nothing does yet, unfortunately, so I make do with the 250-plus channels I now get plus my digital video recorder.

In other words, for Apple to make a real success of the AppleTV the company will need to forgo revenue from the iTunes Store or at least break iTunes’ monopoly in relation to the company’s set-top-box. And that’s highly unlikely to happen, especially considering how little Apple reportedly makes on every AppleTV sold.

Also see: What’s next for the AppleTV?