You could multiplex multiple adpative-rate encrypted video streams into a single stream per viewer, keeping the content of each encrypted and choosing which bit

You could multiplex multiple adpative-rate encrypted video streams into a single stream per viewer, keeping the content of each encrypted and choosing which bitrate streams to include in the multiplexed output according to current bandwidth. There's no need to actually decode them, you just have to know which encrypted streams are which. All composition would then be done on the clients. This is just a possibility for how it could be done, I have no idea how Apple actually does it. For best results, you'd probably need some non-encrypted metadata about the streams too, e.g. timing information.