Digital Restrictions Management
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DRM (known as Digital Restrictions Management or Digital Rights Management) describes a range of measures to restrict the ability to copy files.
DRM files are typically protected by storing some kind of key on your computer, and requiring that programs use this key to use the file. Only closed source programs trusted by the maker of the file can access this key: often this includes Windows Media Player or iTunes.
VLC, like all open source media players, cannot play protected files.
Please note that circumventing DRM restrictions may be illegal where you live (for example, see the DMCA).
Sometimes the term DRM is used to refer to digital watermarking (which hides data which can identify where the file originates) or copy protection.