Originally Posted by SolipsismX
And it makes no sense for Apple to release an AppleTV that can output 720p until they have iTS content that is also 1080p. Now I've heard that they have secured many of the rights thus far and have getting content owners to upload 1080p content in whatever bitrate was agreed upon. I wouldn't be surprised if this was an extra $1 per video over 720p if it's a substantial increase in the file size, but if they follow other distributors that claim 1080p but with bitrates around Apple's 720p (or worse) then I assume it will cost the same.
With a sophisticated codec and enough CPU/GPU compute power and RAM at the receiving end (the ATV3) Apple could drop intermediate frames, compress, stream/download on the server -- then decompress regen dropped frames on the ATV3.
I did some quick experiments and dropping 50% of the frames at 25 FPS, then compressing, reduces the file size (bandwidth requirements) by about 80%.
Apple has some very sophisticated algorithms, like Optical Flow, that, in many cases, do a very good job of generating missing frames. This is normally used to slow video without jerkiness and artifacts. Something like Optical Flow could be repurposed (with hinting) to drop and later regenerate frames with little effect on video quality -- and massive reduction of file size/bandwidth.