The rumors have been flying around for the last six months to a year that Apple would start making big moves in the video game industry. While a small selection of games was made available for the iPod a few months ago, the video iPod can hardly compete with the likes of the DS or PSP. That may have been the first step towards much greater involvement in the video game arena, however, according to Prudential analyst Jesse Tortora.

"We think the video game market represents a distinct possibility for Apple, especially considering that it recently announced the availability of video games for its iPod through its iTunes store," he said in a research note.

But if Apple really does decide to "get its hands dirty," will it go the handheld route or design a home console, or maybe even both?

"The game console device could be morphed out of some combination of the MacMini and iTV, while the handheld player could be developed as an enhancement to a future version of the widescreen iPod," Tortora continued.

As further evidence that Apple is taking this seriously, the analyst points out in his note that the company has recently hired developers and others to work on software and hardware. Interestingly, should Apple go ahead it will be faced with a much different business model that what it's used to. While the company has traditionally made money on hardware, that's something that isn't very easy to achieve in the video game industry.

"The video game console market is notorious for subsidizing hardware to sell profitable games. Apple would then have to either rely on the sales of its games and downloadable movies to make enough profit to cover losses on hardware or figure out a strategy to make profits on hardware itself," Tortora explained.