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1- Connect to your network
In order to connect your AppleTV to your iTunes library you need a wireless network (presumably in your house), and you need to be connected to that network. When you first turn on your AppleTV you will be walked through a series of steps to get you connected to your wireless network. If your network is password protected you will need that information in addition to the name of your network (especially if it is hidden).
If your AppleTV is setup and for some reason it is not connected to your network, you can do this in the "Settings" section of you AppleTV menu.
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2- Connect to iTunes
Just like your wireless connection, AppleTV will help you connect to an iTunes library during the initial setup. To connect to iTunes you will have to have iTunes set up to look for AppleTV units. This can be found in the iTunes preferences under AppleTV. (figure 1) With that done you will be good to go. AppleTV will show you the iTunes libraries it sees and you will pick yours and then be given a numerical code to enter into iTunes. Go to iTunes and click the AppleTV in "Devices." You will be asked for the code. Enter the code and the two parts of the puzzle will be connected.
AppleTV will automatically start loading content from your library of its choosing. Newest content will be loaded first and it will keep loading until it is full. If you want this to stop so you can change settings click the "x" in the iTunes window that tells you it is loading the AppleTV. Next turn of automatic syncing under the AppleTV "Summary" settings when you click the AppleTV in devices. Now you can go in to the tabs and make your choice. Just remeber to always click the "Sync" button if you have automatic syncing off.
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3- Add your content
If you choose not to automatically load content onto the AppleTV you will need to set up what content to load. Adding content to the AppleTV is easy. It is just like loading an iPod. The unit will appear under "Devices" in iTunes and clicking it will reveal tabs that you will be familiar with if you have an iPod. There is a tab for movies, TV shows, music, podcasts, and photos. Each tab has settings for what should be loaded on the AppleTV. Audiobooks will appear under music. (figure 2)
You can set AppleTV to only load new and unwatched video or all videos, only checked music or all music. You can also have the AppleTV see everything in iTunes, even content not loaded onto the AppleTV unit. This will allow for streaming from iTunes and save a lot of space on the AppleTV drive.
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I never thought I would need an AppleTV until I bought one. We use it on a daily basis to watch shows for my toddler which are purchased from iTunes or recorded and sent to AppleTV from EyeTV. Now that we have it, I don't think we can live without the thing!