Microsoft's (NASDAQ:MSFT) Xbox One is becoming an even better multi-media device. Earlier this month at Gamescom, Microsoft announced that its video game console would soon gain the ability to act as a DVR. 

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Photo: Microsoft

Meanwhile, Apple (NASDAQ:AAPL) is widely expected to make an aggressive push into the living room starting as early as next month. Several media outlets, including Buzzfeed and Bloomberg, have confirmed the existence of a next-generation Apple TV set-top box, one that could offer access to an app store, an improved remote control, and, eventually, an Internet-based streaming video service. The current version of the Apple TV is hardly an alternative to Microsoft's relatively expensive, high-powered console, but with this added functionality, the two are likely to enter into much closer competition.

Record the NFL, Dowton Abbey, and Empire -- for free
Late last year, Microsoft released an over-the-air tuner for the Xbox One, giving Xbox One owners the ability to watch broadcast networks through their console. The tuner has its advantages, including a programming guide, voice commands, and the ability to pause live TV for up to 30 minutes, but it's still lacking in one major way -- unlike many cable boxes, it cannot record programming for delayed viewing.

That will change next year. Microsoft hasn't offered up an exact date, but demonstrated the feature at Gamescom, and said it would be coming to the Xbox One sometime next year. When Microsoft releases the update, owners of the Xbox One and its over-the-air tuner will be able to record live broadcast shows to their Xbox One's hard drive. Unfortunately, the Xbox One won't be able to record cable channels, but with cord-cutting on the rise, there's a demand for such a service. TiVo, Tablo, and Simple.TV all sell dedicated boxes that give their owners the ability to record broadcast channels. Yet these boxes cost between $50 and $300 and carry hefty subscription fees. If you already own the console, Microsoft's DVR service will be free.

Apple TV vs. Xbox One
Today, the Apple TV's current competitors include the Roku 3, Fire TV, Chromecast, and other similar, dedicated streaming media boxes. But over the long term, it's true that competition is likely to come more from the Xbox One and its rival the PlayStation 4 -- investors attempting to gauge the Apple TV's potential success should view it through this lens.

The current Apple TV is a competent streaming media device, but not much else. It can't play games or access apps. It relies on a single core A5 processor (a dual core A5 powered the iPhone 4S released in 2011) and has barely any storage (just 8GB). The next Apple TV, however, is expected to ship with an A8 processor (the one powering the iPhone 6) and full app store access.

The apps that will eventually be developed for the Apple TV could run the gamut -- from new streaming and broadcast services to smart-home management tools and new social media apps. But it seems likely that a large portion of them will be games. Gaming is one of the most popular activities for iPhone and iPad users, and as I write this, games represent 22 of the top 75 most popular free iOS apps.

It's unknown what Apple will charge for its next Apple TV, but it seems likely to be more than the $69 it charges for its existing set-top box. Competitor NVIDIA's recently released Android TV-powered SHIELD retails for $199-$300. The Xbox One, at $349, is almost in the same category.

For the time being, Apple TV isn't material to Apple's earnings, but as it pushes into the living room, the evolution of its set-top box is likely to become of greater interest. Although it remains primarily a gaming device, the Xbox One's increasing TV capabilities could provide some tough competition.

Sam Mattera has no position in any stocks mentioned. The Motley Fool recommends Apple and Nvidia. The Motley Fool owns shares of Apple and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.