iTunes and Digital Rights Management
The digital-media business has gotten a lot more complicated in the last decade. When file-sharing networks opened a gaping hole in the entertainment industry's ability to control the distribution of its content, a war broke out between copyright holders and consumers. The current manifestation of that war is DRM and DRM hacking. FairPlay was only one example of DRM -- many companies dealing with licensed digital content have adopted DRM schemes that limit what a consumer can do with legally purchased files. See How Digital Rights Management Works to learn more.
The fact is, working with the entertainment industry to license content is not a simple process. When Apple strikes a deal to sell licensed content, everybody wants a cut. As soon as iTunes started offering TV shows, Apple having struck deals with the TV networks that own those shows, the five entertainment-industry unions decided they needed a cut, too. So out of that $1.99-per-show charge, Apple is paying royalties to a whole lot of people. Subtract from that the cost of building and maintaining the iTunes technology infrastructure, paying credit-card fees and advertising the service, and it looks like Apple's iTunes Store is more of a marketing vehicle than a big revenue generator for the $8 billion company. In short: The iTunes Store helps sell iPods, iPhones and iPads.
The backlash against DRM didn't go unnoticed. In 2007, music publisher EMI announced it would sell unprotected music on iTunes. Any song from EMI would come without the FairPlay DRM. In early 2009, Apple announced that it was phasing out the FairPlay technology throughout the iTunes Store. Today, any song you purchase from iTunes shouldn't have any DRM technology associated with it. Older songs purchased during the FairPlay era still have DRM code. Apple allows users to upgrade to a non-DRM version of the song for 30 cents per song. Alternatively, you can burn the old music files to a CD, which removes the Fairplay DRM from the tracks. Then you can rip the songs back to iTunes.