In a note to clients Thursday, Piper Jaffray’s senior analyst offered a scenario by which Apple would enter the cut-throat TV market by 2011 with an Apple-branded television set with digital video recording and home media functions (music, movies, games, interactive TV) built-in.

“Yes, TV hardware is a challenging business if you don’t change the rules of the game,” Munster writes, “but we see potential for Apple to offer best-in-class software and hardware and charge a premium.”

The roadmap to Apple television (as opposed to Apple TV), as Munster sees it:

1. A new Apple TV set-top box within the next few months, with a TV imput and DVR built in. “With the popularity of ad-based internet TV (Hulu.com) and subscription models (Netflix’s Watch Instantly), we believe a-la-carte (iTunes) video purchases have lost share against other video models in recent months. As such, we believe Apple is exploring a subscription-based offering for its TV content in iTunes.”
2. An iTunes TV Pass within the next year. “Apple could leverage its deep library of content with many network and cable channel content owners to provide unlimited access to a sub-library of its TV shows for a standard monthly fee ($30 to $40 per month). Such a product would effectively replace a consumer’s monthly cable bill (~$85/month) and offer access to current and older episodes of select shows on select channels.”
3. An Apple television set within the next two years that could wirelessly sync with iPods, iPhones and Macs. “Such a device would command a premium among a competitive field of budget TVs; we believe Apple could differentiate itself with software that makes home entertainment simple and solves a pain point for consumers (complicated TV and component systems).”

As evidence for Apple’s interest for pushing deeper into the living room, Munster cites: COO Tim Cook’s statement last month that the company will continue to invest in Apple TV because “we fundamentally believe there is something there for us in the future”; patents covering digital video recording; and a five-year, $500 million partnership with LG to produce LCD screens.

Munster notes that Apple currently controls an addressable user base of more than 65 million iTunes users and has sold more than 48 million iPhones and iPod touches that could be used as TV remotes or interactive TV game controllers.

“The argument that Apple will not enter the television market because prices have declined by ~70% in the past three years,” he concludes, “is a similar argument used to conclude Apple would not enter the cell phone market, given phones had seen similar price declines. The bottom line, 10 million HDTV’s sold in the US a year is a real market, and if history repeats itself, Apple will find a way to compete in a commoditized market with a premium priced product.”

Munster expects Apple to sell 6.6 million Apple TVs in calendar 2009, up from an estimated 2.1 million in 2008 — an estimate of 3X growth that he believes may be conservative. By his calculation, every addition 1 million units Apple sells adds $.03 to Apple’s EPS.