What is HDCP?

HDCP, or High-bandwidth Digital Content Protection as a type of copy protection that was originally developed by Intel, currently the world's largest microprocessor manufacturer. It was designed to protect digital audio and video content as it traveled through interfaces such as: Digital Visual Interface (DVI), DisplayPort, Gigabit Video Interface (GVIF), High-Definition Multimedia Interface (HDMI), and Unified Display Interface (UDI) connections. Because development was overseen by Intel, the content protection given by HDCP is proprietary and any company that wishes to protect their copyrights using this format is required to pay a license fee to Digital Content Protection, LLC.
HDCP is currently required for all content that is streamed through the above interfaces except for DVI, where it is still optional.
How Does HDCP Work?
Every HDCP enabled device has a set of unique keys, each of which is 56 bits long. Furthermore, each device also has a Key Selection Vector (KSV) which is 40 bits long, or one bit for every HDCP stored by the device. The KSV has 20 bits set to 0 and 20 bits set to 1.
During connection between one device to another, the KSV keys rearrange their values to 0's and 1's, corresponding to the secret keys in both devices. If the connection is accepted, both devices end up with the same 56 bit key which is used later during the encryption process.
What are the HDCP License Agreements?
In order for a company to use HDCP, they are required to pay a license fee every year. Furthermore, all HDCP licensees are bound to strict terms laid out in the HDCP License Agreement. The most common example of these terms states that all high definition digital video sources are not permitted to transmit copy protected content to non-compliant receivers. This clause restricts high definition video to lower definitions and down-samples DVD audio to CD quality or lower on non-compliant receivers.
The other main point in the HDCP licensing procedure states that licensees must be vigilant against their products being used to make copies of copy protected works. Furthermore, their products must be designed to prevent any and all attempts to defeat copy protection requirements set forth by the HDCP License Agreement.
Is There a Way to Circumvent HDCP Protection?
There are currently devices available known as HDCP strippers which are designed to remove all HDCP from the video signal so that HDCP protected videos can be played on non-compliant devices.

Sean Scott writes on topics such as What is HDCP?, What is DVI? and What is HDMI? for The Tech FAQ.