Actually not all TVs do this. Mine doesn't. It's usually the job of the playback box to letterbox the content or not, depending on the playback box TV setting. However the
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TV doesn't have such a setting. My DVD player has it, my Nintendo Wii has it, my Xbox 360 has it. But not the
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TV.
There is a
converter box coming soon, however while it seems to letterbox the content it will also force you to use S-Video instead of components. And then forget about 4:3 content, it will have a black border all around (letterboxing from the converter + pillarboxing from the
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TV). It also seem to have a US$40 rebate until the release date, April 30.
If your TV doesn't have a letterboxing/16:9 mode, don't plan on buying anything from the iTunes Store and simply use the
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TV with your own encoded content, there is a solution.
Since the
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TV assumes a 16:9 screen, all you have to do is encode your movies with the wrong aspect ratio. If a movie is 720x400, encode to 720x300. It will look wrong on your computer or a widescreen TV, but it will display correctly from the
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TV to your 4:3 TV.
Why Apple didn't add a simple "TV type" setting is beyond me. Even if the
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TV supported old square TVs that wouldn't mean they'd have to do their marketing with a square TV.