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Mac Mini and Apple TV - Intended Purpose
The Mac Mini is a computer. You can do everything on a Mac Mini that you can do on your desktop computer (for the most part). Apple created the Mac Mini for that purpose. The Apple TV is a network hard drive designed specifically for streaming movies, music, tv shows, and other media from your computer to your TV.
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Mac Mini and Apple TV - Media Center Connections
Mac Minis are extremely versatile in their abilities to be a home media center. A Mac Mini connected directly to a home theater setup involves using your television like a computer monitor. To setup a Mac Mini directly, simply locate your Mac Mini somewhere near your television, hook up all the peripherals, and connect it to your TV using your preferred connection type. You will need an Apple branded adapter for this, such as a Mini Displayport to DVI. From there, you can purchase a DVI to "other connection type" if your TV doesn't have built-in DVI capabilities. Switch the input on your TV to the Mac Mini connection, turn on the Mac Mini, and watch your media.
Because Apple TVs are meant for use on a TV, they have several ports to connect to a television such as HDMI. Most likely, you will not have to buy any additional adapters to hook up an Apple TV. Upon connecting Apple TV to your television, it will automatically connect to your home's 802.11 wireless router. From there, it can communicate with your computer via iTunes. You can choose to either sync or stream content to watch on your television. Syncing content copies all of the iTunes media on your computer to the Apple TV's built-in hard drive for direct playback. Streaming content connects wirelessly to your computer's iTunes content and streams media to Apple TV each time you listen to music, watch a movie, view photos, etc... To use an Apple TV you must have a computer in your home with iTunes that is connected to a wireless network.
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Mac Mini and Apple TV - Pros and Cons
With a Mac Mini, you are getting an actual computer. Meaning, as soon as you connect it to your television, you can surf the internet, use applications, play games, etc. You also have more versatility for listening to music, watching movies, watching TV, viewing photos, etc. For example, you could actually open up the iPhoto application to view your pictures. You can play a game of online chess.You are not restricted to just iTunes.
With Apple TV, you are restricted to iTunes media. You cannot use Apple TV to surf the internet, use apps, or anything else. Apple TV uses Apple's Front Row application as an interface. So, if you have a Mac computer, just launch the front row application and check it out. You will notice that it only has music, movies, and photos. What you see on your screen using front row, is all Apple TV can do.
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Conclusion and Price
So, Apple TV versus Mac Mini; which one should you get? Maybe price will help you decide. Apple TV retails for $229 directly from Apple. The cheapest Mac Mini retails for $599 directly from Apple. Thus, you could buy two Apple TVs for the price of one Mac Mini and still have $140 bucks in your pocket; or you could buy an Apple TV, an iPod Touch, and $170 worth of iTunes media for the price of a Mac Mini. But remember, an Apple TV is just a plastic case, hard drive, and wireless card. A Mac Mini is a plastic case, hard drive, dvd burner, processor, RAM, graphics card, wireless card, etc.
Still can't decide on the Apple TV versus Mac Mini? Consider what you will be using it for. It all depends on what capabilities you want in your home media setup. If you are strictly going to use your TV for watching shows, watching movies, and listening to music, it is strongly recommended that you go with the Apple TV and spend the extra money elsewhere.
If you want the ability to browse the Internet, use applications, play games, etc, it is strongly recommended that you go for the Mac Mini, as it will be worth the price.