Old MacBook as a media server?

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I have an old Macbook that the wife and I are not using (currently using a diff Macbook and her Macbook Air, as well as each having iPad, and iPhone, I know . . . we are junkies). We use a 2TB Time Capsule to wirelessly backup the laptops via Time Machine.

I have run out of space on my hard drive largely due to iTunes and iPhoto. I am wondering if it is possible to erase the HD on the old Macbook, reinstall Lion, plug it in directly to the Time Capsule with a separate ext HD plugged in via FireWire to the Macbook to serve as storage for iTunes, iPhoto, videos, etc.? Would just use the Macbook, but it's HD is only 150GB and I think it would run out soon.

Couple of questions:
- Can I redirect my iTunes library so that all my music is stored on the Macbook/External Hard drive attached to Time Capsule (thus freeing up my HD)?
- Can I set up Time Machine to keep an automatic backup of the Macbook/Ext HD on Time Capsule like it does for our regularly used laptops?
- If I can change the iTunes library so it's on the MB/Ext HD plugged into Time Capsule, then if I take my current MD off of my network, will I have access to any of my music, etc.?
- I am guessing that for it to act as a media server, I would just enable iTunes Sharing. My wife and I use different appleID though, will she still have access to music and movies if her computer is authorized to play stuff from my appleID?

Sorry for the length, just a lot of questions. Thanks so much for the help. And if there are any suggestions on good ext HD, I was leaning towards WD or Seagate and likely 2-3TB. We have FireWire 400 connections on the old Macbook.
 
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1.8 GHz i7 MBA 11" OSX 10.8.2
You can just set up the Macbook on the network as a media server (Connecting it through either wifi or ethernet) You wouldn't connect it through the USB port of the Time Capsule. (Note you could hook an external hard drive to your time capsule and store your media library there but that probably isn't what you want to do)

So I would recommend getting an external USB drive - hooking it to the Macbook then storing the iTunes media there. Here is Apple's tutorial
iTunes: How to move your music to a new computer
I tend to use home sharing to move my music and media around

You can have Time Machine back up the external drive but that will probably take up all of your space. I don't have a great solution for backup of media other than copying it to various drives. Others may have better solutions. That being said you can go to Open time machine preferences -> options -> then add what volumes you want backed up. By default external drives are excluded but you can change that.

If you are using home sharing then if the Macbook goes offline - then the library goes off line. You could store your files on an attached hard drive on the time capsule but it wouldn't be shared through home sharing and it wouldn't be as easy to transfer data to iOS devices.

I have 1 itunes ID for sharing with the family the Apps and media - so I am not 100% sure what happens when you do sharing with multiple apple IDs.

There are a myriad of ways to do what you are asking - but with the equipment you mentioned - this is my recommendation.
 
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You can just set up the Macbook on the network as a media server (Connecting it through either wifi or ethernet) You wouldn't connect it through the USB port of the Time Capsule. (Note you could hook an external hard drive to your time capsule and store your media library there but that probably isn't what you want to do)

So I would recommend getting an external USB drive - hooking it to the Macbook then storing the iTunes media there. Here is Apple's tutorial
iTunes: How to move your music to a new computer
I tend to use home sharing to move my music and media around

You can have Time Machine back up the external drive but that will probably take up all of your space. I don't have a great solution for backup of media other than copying it to various drives. Others may have better solutions. That being said you can go to Open time machine preferences -> options -> then add what volumes you want backed up. By default external drives are excluded but you can change that.

If you are using home sharing then if the Macbook goes offline - then the library goes off line. You could store your files on an attached hard drive on the time capsule but it wouldn't be shared through home sharing and it wouldn't be as easy to transfer data to iOS devices.

I have 1 itunes ID for sharing with the family the Apps and media - so I am not 100% sure what happens when you do sharing with multiple apple IDs.

There are a myriad of ways to do what you are asking - but with the equipment you mentioned - this is my recommendation.

Thanks for the quick reply. That was sort of the setup I was envisioning - old macbook with attached ext HD wired by ethernet to the TC so it's always on the network.

If the iTunes library isn't backed up to TC via TM due to size (which is a good point), what's a good way to have a backup of the iTunes library? I keep bootable clones of our current laptops offsite in case of fire, loss, etc.
 
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I don't have a great offsite/backup solution that I use yet. I've been researching for several years and I may go with JBOD stored in a bank vault offsite - that I will switch every month. Bootable clones offsite is actually a good thing to have.

There are several offsite - network based backups
Online Backup, Data Backup & Remote Backup Solutions | Mozy
Carbonite Online Backup Software | Cloud Backup for Home and Business
seem to be the most popular.

Right now - I am keeping most of my documents on Dropbox or Sugarsync
www.dropbox.com
www.sugarsync.com
and my Photos I auto-upload to Flickr
Welcome to Flickr - Photo Sharing

But my media files in iTunes - I just have several copies laying about on various hard drives - I really need a better solution for those files.
 

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