By Scott Martin

Apple’s set-top box device for consuming digital media, expected to hit stores next week, has at least one analyst optimistic that it will be a DVD killer.

Apple TV could also haul in billions of dollars in sales within a few years, according to Deutsche Bank analyst Chris Whitmore.

“It’s conceivable” that Apple’s living room entertainment box—rival to Microsoft’s Xbox—could carve out 20 to 30 percent of a $26 billion market in a few years, Mr. Whitmore said Tuesday in a report.

That could “drive $5-7B in incremental revenue and $0.50-plus in EPS” for Apple, he wrote.

Apple stands to first gain from the roughly 40 million people who use iTunes, but Apple TV will eventually eat into the business of makers of DVD and CD players, according to Deutsche Bank.

Apple TV preorders were announced in January at Macworld, where details were released on the device’s features, including Wi-Fi and a 40-gigabyte hard drive (see Apple Tunes iTV for Battle). Microsoft’s Xbox 360 packs a 20-gigabyte hard drive and is HD capable.

Apple also announced at its big event that it had struck a deal with Paramount for iTunes distribution. Last week Apple announced that it had finalized a deal with Lionsgate for iTunes (see iTunes Delivers Lionsgate).

Bill Gates laid out Microsoft’s Xbox IPTV strategy at the Consumer Electronics Show in Las Vegas just days before the Apple TV debut (see Gates Readies for War With Apple), setting up a battle royal between Microsoft, Apple, and Sony.

Apple TV can shuttle media wireless from up to five PCs and will auto synch with computers. The media box will deliver 720p HD quality. The device will sell for $299.