This news broke last week, so I’m a little late. But it’s important news, so I’ll post it anyway.

The Content License Transfer Tool (aka DRM Tool) is now available for use. This tool will allow you to consolidate licenses to a single console. What exactly does this mean? Well, a lot of sites reporting on this don’t seem to have a full understanding of what this is and exactly how it works. Even the official FAQ doesn’t make everything entirely clear, so I’ll do my best to what this is and why we have it. Hit the jump for the best explanation I can come up with.

Every time you download a piece of content onto your Xbox 360, that license for that content is tied to two things: your Gamertag and the console you originally downloaded the content to. The console license is significant because it allows your content to be used by other Gamertags on that console AND by you when you’re not signed into Xbox LIVE.

If your console changes (i.e. You swapped your console at your retailer, you upgraded to an Elite, etc.), you will need to be signed into Xbox LIVE or your content will either not work (DLC for games) or in the case of XBLA games, will revert to Trial mode. For you and any other users of your new console, the content and XBLA games will only work if YOU are signed into Xbox LIVE. Confused yet? Good!

Anyway, here’s where the new tool comes in. The tool will allow you to move all licenses from any consoles you have made purchases on to your new console. Doing this will let you use your content and games offline and will let other users use that content, just like it should be.

Now, this tool is not for use if you have had your console repaired by Microsoft. The repair centers should be migrating your content for you before you get your 360 back. If you have your console repaired and these licenses weren’t migrated, you will probably want to contact Microsoft Support as opposed to using this tool. The reason for this is the tool is only usable once in a 12-month period. This is to prevent people from moving their content willy-nilly. Personally, I feel 12 months is a little overkill. Three to six months would be more reasonable, but I digress.

That’s pretty much the rundown of the new tool and why it even exists. Head over to Major Nelson’s blog for a walkthrough video of the new tool. If anything about the tool or the 360’s DRM doesn’t make sense, feel free to post a comment and ask a question. I’d be happy to answer any inquiries as I’ve done quite a bit of research on this topic.

Link: Content License Transfer Tool [Via Major Nelson]