The update could come as soon as March, according to iLounge. Apple engineers are said to be working on adding support for Bluetooth game controllers, which may indicate that the refresh would also bring a new fourth-generation hardware platform.
Without new hardware, the publication speculates that the set-top box could stream games from iCloud, similar to the ill-fated Ouya streaming device. The Apple TV currently features just 8 gigabytes of built-in memory, used for buffering high-definition video and audio.
Rumors of an Apple TV refresh also surfaced ahead of last September's iPhone 5s launch event with a tweet from journalist MG Siegler that stated "those excited about a software refresh in a week are gonna be *really* excited when new Apple TV hardware is unveiled next month." Ultimately, that update never materialized.
Apple's streamer is locked in a neck-and-neck battle for living room share with rival Roku, which already features its own application marketplace. The two devices account for 80 percent of the set-top market between them.