You have to have local copy of movie for iTunes sharing with new ATV???

I'm pretty sure that's not the case as I tested the picture quality by streaming straight from iTunes. Have you turned iCloud on? Are you looking at purchased in iTunes or trying to go through the computer icon? If it's the computer icon, then that will only show your local library.

 

That's definitely not the case - you can see all your purchased movies on the ATV4 (like Denziloshamen said, make sure you are looking under Movies, not Computers).

 

The movies should show up regardless whether you purchased them or redeemed digital copies. Have you checked under Settings/Accounts that you are logged in to both iCloud and iTunes?

 

All of my "purchased movies" (which includes digital copies) show up under the iTunes Movies app.

 

Digital copies are the same as purchased films from iTunes. I've never bought any films from iTunes. But have films given away as part of the 12 Days of Christmas (Home Alone and a Charlie Chaplin film) and also copies I've redeemed as digital copies. They all live under the same section in the iTunes movie section and can all be streamed without the need for them to be in my local library.