OK, everyone who saw Netflix going in to online rentals put your right hand up. I see a lot of hands, congratulations, you were right. On January 3rd, Netflix and LG Electronics announced that they would be delivering set-top box for consumers to stream movies and TV show episodes from the Internet to HDTVs without the use of a PC.

With more than 7-million subscribers, Netflix owns the DVD rental business, and now they have their eyes on the media extender market. That’s still a small market, but it’s one where Apple TV has quickly become the dominant player. Will Apple be able to stay on top?

Amazon, with its UnBox and TiVo partnership, has also entered this market. As far as I can tell though, this alliance hasn’t done this well. On the other hand, when you think video rental, you don’t think Amazon, you think Blockbuster or Netflix. Therefore, I’m assuming that Netflix will do better than Amazon out of the gate.

It sounds like the Netflix/LF unnamed media extender will be a compelling alternative. In part, though, that’s because we know so little about it. Will you be able to download a movie on Monday and watch it a week later? We don’t know. Can you rent three movies and keep them stored until you want to watch them? Again, we don’t know. 720p, 1080i, 1080p? It will deliver at least this level of resolution, probably not, and darn good question.

Here’s what we do know about Apple TV rentals, the Apple TV, with movie rentals expected to be available from Disney and Fox, will be capable of doing all these things. We also know how much an Apple TV costs and that, in its current version, it can deliver 720p.

What does all this mean? Well, Apple TV could stand some improvements. I’d like to see 1080p, a bigger default hard-drive, more HD content from the iTunes store and a way to directly order video from the store while using the Apple TV interface.

That said, until I know a lot more about exactly what it is Netflix and LG have up their sleeves for the second-half of 2008, I’m not going to worry about them over-much. My concerns will continue to lie with how well Apple does with improving the Apple TV. Hopefully, Steve Jobs will have some news for us on that front come MacWorld in a few days.