Maybe This Is How It Works...
Content you buy from iTunes can be accessed or streamed from Apple's cloud server to any Apple device you own anytime, anywhere, for $25 a year.
Your own local content, including stuff you DIDN'T buy from Apple, can be streamed from your Time Machine to any Apple device anytime, anywhere for free. (Apple's cloud server would probably hold the media catalog, but the media itself would dwell on your Time Machine connected to your network and would stream directly from there - which is great, since there's no need to leave your PC on 24/7.)
That way you cover both scenarios in a way that keeps everyone - record labels, movie studios and end users - reasonably happy.
Content you buy from iTunes can be accessed or streamed from Apple's cloud server to any Apple device you own anytime, anywhere, for $25 a year.
Your own local content, including stuff you DIDN'T buy from Apple, can be streamed from your Time Machine to any Apple device anytime, anywhere for free. (Apple's cloud server would probably hold the media catalog, but the media itself would dwell on your Time Machine connected to your network and would stream directly from there - which is great, since there's no need to leave your PC on 24/7.)
That way you cover both scenarios in a way that keeps everyone - record labels, movie studios and end users - reasonably happy.