Details of Microsoft's rumored plans were reported on Wednesday by The Verge, which indicated the device would be intended for streaming media, as well as casual gaming. The box is said to be part of a two-model strategy for the company, which is also expected to introduce its next-generation full-fledged successor to the Xbox 360 console next year.
"The device will run on the core components of Windows 8 and support casual gaming titles rather than full Xbox games typically found on a dedicated console," author Tom Warren explained. "Although hardware specifications aren't fully locked down, we understand Microsoft will use a chipset to enable an "always on" device that boots quickly and resumes to near-instant access to TV and entertainment devices."
Microsoft and Apple already compete in the living room, but the Xbox 360 console is a gaming-centric device with a starting price twice that of the $99 Apple TV.
The Windows maker recently rebranded its entertainment services with the Xbox name, ditching the Zune name that was previously tied to the company's failed line of portable media players. Before it was discontinued, the Zune attempted to compete with Apple's market dominating iPod lineup.
The Apple TV can also be used for gaming, but only via iPhone, iPad or iPod touch games that support AirPlay functionality. The Apple TV lacks a dedicated App Store for new software, and also lacks a dedicated gaming controller.
Tim Cook referred to the Apple TV as a "beloved hobby" during his company's quarterly conference call in October. He revealed that more than 5 million units were sold in fiscal 2012, but sales were not strong enough for the device to have much of an impact on the company's bottom line.