Does Apple TV need Internet bandwidth even if the content is available on LAN?

Hi,
I was wondering whether Apple TV needs Internet connection just to verify user credentials or it actually uses bandwidth to stream media even if the videos are available locally on a storage device.
I am using an Apple TV 2nd Generation connected to a HD TV. I use Air Video Server to stream videos from a laptop connected to the same LAN.
Even though both devices are connected to a LAN I see usage of Internet bandwidth on my Telstra account.
can someone explain to me why ATV needs Internet to stream local videos?
Regards,
Kiran

I noticed the same problem with my ATV2. I have a laptop connected to a router at my cottage and it is not connected to the internet. As soon as i upgraded to 6.0 it took forever to stream movie that were in itunes. I tried both wirelessly and wired. I even bought a different brand of router and that made no difference. It worked fine before the update. When I brought the router home and connected it to the internet, it was instanteneous, but when disconnected it slowed to being unusable. I think that something changed in V 6.0 and it hasn't been corrected yet becuase I just updated to the latest version and it made no difference.

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