Fortune: Inside the Apple iTunes Music Store

Apple announced its new online Music Store today — and Fortune apparently had the exclusive on coverage. This article explains a bit more about how it all works — including some of the anti-privacy features that were likely critical to obtaining label and artist support for the service.

Apple has also come up with a copy-protection scheme that satisfies the music industry but won’t alienate paying customers. You can burn individual songs onto an unlimited number of CDs. You can download them onto as many iPods as you might own. In other words, the music is pretty much yours to do with as you please. Casual music pirates, however, won’t like it. The iTunes jukebox software will allow a specific playlist of songs or an album to be burned onto a CD ten times. You can burn more than that only if you manually change the order of the songs in the playlist.

And anybody who tries to upload iTunes Music Store songs onto KaZaA will be shocked. Each song is encrypted with a digital key so that it can be played only on three authorized computers, and that prevents songs from being transferred online. Even if you burn the AAC songs onto a CD that a conventional CD player can read and then re-rip them back into standard MP3 files, the sound quality is awful.

While this is an exciting day for Apple, there are two immediately obvious shortcomings to the Music Store: it only works for folks in the US and the user agreement requires that you be over 18. Solving both of those obviously opens up a much bigger opportunity for Apple. I think we know how to do that!

One of the very cool features of the new version of iTunes that was also released today is the local music sharing enabled via Rendezvous. Rendezvous enables local computers to connect to each other without any associated server connection. Very cool indeed! And just perfect for this kind of application around the home or office!

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