Okay Apple your game is up. You can stop pretending that the AppleTV is your nice little hobby because word is coming in with what we’ve all pretty much assumed this past year: the AppleTV isn’t selling. After only moving 400,000 units so far, even after the holiday rush, analysts are projecting the numbers will be well below the 1,000,000 they had initially projected for Apple to move in the AppleTV’s first year.

Now everyone is entitled to a dud product every once in a while, but your problem here is that the AppleTV – whether you like it or not – is directly tied to the livelihood of the iTunes video store. Having one of them be outstanding will likely bolster the other, but as of right now, neither are. It’s time to get off your ass Apple and start doing what it takes to show you’re committed to digital video.

You can start by simply creating a new AppleTV – one that is merged with the Mac Mini. Here are some ideas:

1. huge hard drive (500 GB to 1 TB)
2. some sort of optical drive (Blu-ray would be nice, but we’ll settle for a simple DVD drive)
3. built-in iTunes store capabilities for both buying and renting (yes, renting) movies
4. on-board hardware-based h.264 encoding

I don’t think that any of those 4 are asking too much, and all seem very doable at a reasonable price. You may be killing the optical drives in the new Slim Macbook, but people still very much want to be able to watch their DVDs and would likely much rather use the device I laid out over their plain old DVD player.

The h.264 chip might be problematic because studios will know that is meant to rip DVDs via an excellent program such as Handbrake, but at least a few seem to be letting down their guard with regards to making a digital copy of a movie you buy – and others are exploring bundling a digital copy directly on the DVD. While ripping your own DVDs will be a goal the future, if the studios are only comfortable with bundling iTunes-ready digital copies, settle for that in lieu of the h.264 chip for now.

Your next step would be to pump up the iTunes video store.

1. the aforementioned iTunes Movie Rental store
2. sign the deal with 20th Century Fox
3. HD content for the love of god
4. make a deal to bring back NBC

Again, 4 things that don’t sound unreasonable. Sure, NBC is stupid to leave, but they are still taking their business with them. While it would seem likely that eventually they will be back – and while the strike buys you some time – you shouldn’t take the arrogant, “we’re 100% right” approach. Negotiate with them, they’ll probably make some concessions if you will. If you’re unwilling to do that, at least make offers to all the major movie studios that none of them can refuse, and watch NBC come crawling back defeated. I’ll leave that choice up to you.

I don’t think any of these 8 steps are unreasonable for short term goals. It’ll take a little bit of work, and a little bit of concessions, but the endgame is too great to pass up. You can do for video what you did for music, but you have to first admit that you’re not doing it right now. Admit your denial and move forward.

Also be sure to check out Louis Gray’s excellent Eight Reasons the Apple TV is Failing, and How It Can Be Saved. Apple, if the sales numbers don’t show to you just how much the AppleTV is lacking, the great ideas you’ve thus far left on the table should.