SAN FRANCISCO — Apple Computer is moving into the living room next year with a book-sized device that connects to the television and plays movies and music.

Chief Executive Steve Jobs unveiled the $299 device, internally code-named iTV, at a marketing event this morning. The silver box will receive programs wirelessly from a home computer to play on television screens, and will go on sale in the first quarter of next year.

"Apple's in your living room with iTV, driving your big, flat-screen TV," Jobs said. The move puts the company even more squarely in competition with Microsoft, which has been trying to move into the home-entertainment business with products like its Windows Media Center line of computer operating systems.

"I hope this gives you a little bit of an idea of where we're going," Jobs said.

As expected, Jobs also said that Apple will begin selling digital downloads of movies in its iTunes Music Store. The company will sell 75 movies from the four movie studios owned by The Walt Disney Co., starting today.

The store will sell movies at the same time they become available on DVD, and will sell the two highest grossing movies of the year, "Cars" and "Pirates of the Caribbean: Dead Man's Chest," when they are released.

Unlike Amazon.com, which announced a movie download service last week, Apple will only sell films, and not make any available for rent. Apple's downloads appear to be more flexible than Amazon's, however.

Apple will sell movies cheaper than many online competitors, with new releases priced at $12.99 for the first week, and moving to $14.99 after that. Older titles, such as "Shakespeare in Love," will generally sell for $9.99.

A movie can be downloaded in 30 minutes with a fast broadband connection of 5 megabits per second, Jobs said, and a user can begin watching it one minute after it starts downloading. Unlike Amazon's service, Apple lets a user download multiple videos at once.

Apple's announcement comes less than a week after Amazon unveiled its Unbox movie downloading service. But the two companies' strategies — and results — could not be more different.

Amazon released Unbox with almost zero fanfare, leaving all the hype about its service to speculative articles in the media. The company was too busy putting the finishing touches on Unbox to devote much time to hype, representatives said.

Unbox met fairly harsh criticism in the media and in technology blogs for its restrictive terms and for technical problems with the software. The company was unable to get movie studios to loosen the strict limitations that have hindered the success of competing downloading services.

Apple, already skilled at engineering buzz for its announcements, simply e-mailed an invitation to the media with the words, "It's Showtime."

That was enough to raise expectations that Apple might be able to nudge Hollywood on licensing terms that could change the way movies are sold and distributed.

After all, Apple did just that with the recording industry, selling more than 1 million songs in the week after it debuted its iTunes online music store in May 2003. The store has since become the top-selling store for music downloads.

While Apple was able to make some progress in terms of loosening Hollywood restrictions, it still has only one partner – Disney – and Jobs sits on that company's board. Amazon, on the other hand, was able to strike deals with several movie companies.

Jobs also said a new iPod debuting today would have a 60 percent brighter screen and come in two models with 30 gigabytes and 80 gigabytes of storage. The first model can hold up to 40 hours of video, has a battery life for video playback of 3.5 hours and cost $249.

The larger-capacity model can hold up to 100 hours of video or 20,000 songs. It would also have a 6.5-hour battery life for video and cost $349.

Apple will also begin selling casual video games for playing on the iPod – using the scroll wheel as a controller – including "Bejeweled" and other titles from Seattle-based PopCap Games.

Jobs also unveiled a second-generation iPod Nano with a 24-hour battery life and a new iPod Shuffle that looked barely bigger than a postage stamp. The new Shuffle, priced at $79, will ship in October and will likely be a strong holiday seller for the company.

The iTunes store is now the fifth-largest seller of legal music in the United States, Jobs said. Wal-Mart is first, then followed by Best Buy, Target and Amazon – all stores that mainly sell physical compact discs.

iTunes is on a trajectory to unseat Amazon in fourth place by next year, Jobs said. So far, people have bought 1.5 billion songs from the iTunes Music Store, giving the service an 88 percent market share for legal downloads in the U.S.

Kim Peterson: 206-464-2360 or kpeterson@seattletimes.com