I do mind having to convert all the avi files but don't know of any other way to make them playable from the Time Capsule. Actually, I'm not sure if the issue is that the Time Capsule doesn't do non MP4 files or that the Cloud Browser app on my iPad won't play them?
The reason I bought the Time Capsule was to access movies on it with my iPad while traveling and out in the middle of nowhere with NO internet. So considering that, does the Mac Mini create its own wireless network without internet like the Time Capsule? If not, then what would be the point for getting a Mac Mini?
Think of it this way, your original system with iPad and Time Capsule will work since Time Capsule is a router, but only with Apple standard files. To play non-Apple standard files you'll need a computer to re-convert them to Apple standard. It doesn't matter what app you're using. If you want to play non-Apple standard, you'll need a computer.
Mac mini is perfect for this task. It's small and quiet and the old model is very cheap. It will be just another device connected to Time Capsule and do all the hard work. In short, your system will be much more flexible since now your iPad will talk to a real computer (instead of dumb one like Time Capsule). You can set Home Sharing on Mac mini iTunes and you will see all your musics and videos on the Apple apps on iPad. No need for browser app at all. If you want to play avi or mkv file you just install, for example, Air Video HD on iPad and Air Video server on the Mac and you're good to go.
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