M Senft - I think it's great that you are trying to learn so much about iTunes Match by asking questions. It does sound as though you're a cautious person and that's a good thing.
If you are hoping for a flawless transfer of all of your music to the cloud and a seamless transition to cloud-based music enjoyment, please understand that iTunes Match is not perfect. I personally love the service, but I and other reqular contributors here have responded to enough other first-time users to know it's best for anyone who is thinking about purchasing the service to have a clear understanding of its flaws before making the decision.
Because the title of your first post was, "Step by Step, How Does It Work." It is possible other first-time users may read this thread hoping to get some valuable information before they too, decide to purchase the service.
With those people considering purchasing the service in mind, below is a list of key issues other users have encountered. If you have been reading the board, you probably are aware of many of them. I personally have had to deal with only some of the minor issues. Some of these issues are documented by Apple in the support documents I have provided links to in earlier postings to this thread, so I do hope people will take the time to read them.
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First, keep in mind that iTunes Match is a music-only service. Other than iTunes purchased music videos that are still for sale in the iTunes store, music videos are not eligible and will not be uploaded or matched. Neither will audio books. If songs you purchased through the iTunes store are no longer for sale there, those songs will not match either and will have to upload.
If you do not let iTunes Match fully complete its first session before turning Match on other devices, the service may, at least at first, not behave as you expect. At a minimum, you will see grayed out music tracks where the music will not play, missing artwork, etc. Many user issues seem to stem from not allowing the first session to complete before adding other devices and to trying to manually correct problems while iTunes Match is still processing. That people would want to be able to access their music on their iPhone immediately is understandable, but the first session can take many hours, even days to complete.
It really does pay to be patient with iTunes Match when running it for the first time. It is safe to interrupt an iTunes Match session though. You may want to set it up to run overnight.
The new view options for iCloud Status, while very helpful, may need to be re-enabled whenever you re-start iTunes Match. These options will let you know if a track was matched, uploaded, ineligible or waiting to be processed. However they do not always appear while a match session is running.
Some users have been confused by the changes and additions to the iTunes interface once iTunes Match has been enabled. For instance, iTunes Match only shows up in the left-hand column while a Match session is running. To know if you are connected, you must look for a cloud icon next to your music library. A solid cloud means you are connected. A pulsing cloud means iTunes Match is on, but you are not connected.
Also, when iTunes Match is turned on, you will see all music that has been added to the cloud, which includes music added from iTunes libraries on other computers and may also include music that you purchased from the iTunes store, but later deleted from your iTunes library. In order to see your local library the way you are used to seeing it, you must turn iTunes Match off.
If you attempt to make changes to your iTunes library while iTunes Match is processing it, those changes may not "stick." Changes to metadata in particular should not be made while Match is processing. If you wish to change metadata, it is best to do it before running iTunes Match.
If you are hoping that iTunes Match will fix your metadata for you, it will not. Apple has designed iTunes Match to copy your metadata. It will, however, update changes you make.
iTunes Match will periodically scan your library for changes, but changes won't always be sent to the cloud immediately, nor immediately appear on all devices. While some patience is warranted, you may be able to speed things along by manually selecting "Update iTunes Match."
iTunes Match will not stay enabled permanently on your computer. It may get turned off without your knowledge, or you may get an alert stating that the session has expired. While turning it back on is not difficult, when you do, you may see a screen that will ask you if you want to "add this computer" to iTunes Match. It is safe to click to add, because you are not really "adding" the computer, just turning the service on again, but it may ask you for your Apple ID again. Be sure to use the same ID you used to subscribe to iTunes Match.
If you purchase iTunes Match primarily to obtain higher-quality versions of low-bitrate tracks, you may be disappointed. While you will get many, many matches, not everything will match. My personal experience with a library of only 5,000 tracks has been that if I had purchased the service only to get higher quality tracks (I did not purchase it for that reason) I paid less than a penny for each upgraded track.
You will likely encounter situations where songs that were uploaded appear to be for sale in the iTunes library and therefore should have been matched. Whether this is true or not (the song for sale may or may not be identical to what you own), you will likely have situations where all but one or two songs on an album match. Because uploaded songs are copies of what you already have, the transition between matched and uploaded songs may be apparent to you. It may be a difference in volume, in sound quality, or both.
While most ineligible tracks can be made eligible via making an AAC copy, DRM protected music that the computer you are using to set up iTunes Match isn't authorized to play will be marked as ineligible. Attempts to add DRM protected tracks may bring up an alert that simply says, "this computer is not authorized" or words to that effect, with no mention that "authorized" is a reference to DRM protection. You will have to authorize the computer before you can process those files.
If you regularly record using an open source program such as Audacity and output AAC files from it, you may have files that iTunes Match will upload, but not play. Downloaded copies of these files will not play either. Making a second AAC copy within iTunes generally solves this problem.
While not all lossless formats are eligible for iTunes Match, those that are eligible generally end up getting transcoded to AAC during the match session. It is the AAC version that gets uploaded. While this behavior is normal and documented by Apple, persons unaware of it often don't understand why lossless files, when downloaded from the cloud are not lossless anymore.
Some tracks in your library may turn out to be corrupted, and if so, they will be marked as ineligible. If you have the original source for these tracks, such as a CD, you may need to make new copies in order to get them into your library.
Some tracks may cause iTunes Match to hang when processing your library. Corrupted tracks are generally believed to be the cause of many of these hangs.
iTunes Match will not tell you when it hangs. Because of this, if a hang does occur, Match may remain in that state until you realize nothing is happening and intervene. Generally the way to correct this problem seems to be to remove the offending track and re-start iTunes Match. Because the best way to get iTunes match through the first session as quickly as possible is to just let it run without interruption (for hours or days), the caution here is that you must occasionally check to see that files are being processed.
If you have explicit lyric tracks, there is a chance that some of them will be matched with clean versions.
If you have long versions of some songs, it is possible they will get matched with shorter versions.
If you have mono versions of some Beatles tracks, is is possible they will get matched to stereo versions.
Because of the possiblity of incorrect matches, and various media types that are not eligible for the service, you should not consider iTunes Match as a replacement for a solid backup of your iTunes library. Even if you are willing to accept that what is in the cloud is not necessarly identical to what you have on your hard drive, you are strongly cautioned that deleting music from your drive without a local backup is a high-risk decision, one that is not recommended you take.
While it is possible to re-submit tracks that did not match, it is not as simple as running Match again. You will need to delete the tracks from your library and the cloud, then add them back into your library. The process for doing this is detailed in other postings. be aware that while people have had some success getting more matches this way, there is no guarantee. There have also been reports of some previously matched tracks getting uploaded the second time.
Syncing your music as you have in the past, via USB sync, may not be possible. There seems to be conflicting information on this, but there certainly have been reports of it causing problems. You are advised against jumping between using Match and doing USB syncs without further investigating the various problems some people have had doing so.
If you have nested playlists, or playlists that include ineligible material such as music videos or audio books, those playlists either will not transfer to the cloud, or if they do, will not work properly.
Playlists may not appear on all devices in the same order that you are used to.
Album art will likely not appear immediately for all of your music on all devices after your first Match session. While it may be that art is first served up on an as-needed basis, it still may not display for all of your albums and songs when it should. The more you have added album art from various sources to your library, the greater the chance you will have artwork issues that you will have to manually deal with. Users have reported some success in resolving their album art issues. There are many postings on the subject.
If you regularly listen to music from your iPhone through a device that also reads your library (some car sound systems) that device may not recognize the iTunes Match library. It may be necessary to download music and set the phone so that it behaves like it always has in order get past this issue.
Finally, many users get confused about how the service works with iOS devices and how music is displayed on them.
With the exception of the current model AppleTV, music is not streamed per-se to iOS Devices. While it will begin to play almost immediately upon selecting a song, the song is actually being downloaded. No music is actually downloaded to your iPhone or iPad unless you play it or take other steps to download it yourself. For instance, you can download entire playlists, individually download songs by clicking on the cloud download icon next to them, or scroll to the bottom of an album track list and hit "download all."
Remember that while iTunes Match is enabled, you will see all the music available to you, but you are seeing a combination of what is in the cloud and locally stored on your device. If you wish to see only what is on your iOS device, there is a setting in your music app that will let you do that.
If you attempt to download music while on 3G and cannot, you will have to enable the setting that allows iTunes Match downloads via 3G. This setting is turned off by default.
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These are just some of the issues others have encountered. It is by no means all-inclusive. As I said, I personally have dealt with only some of the issues. My overall experience with iTunes Match has been very good.