That content includes thousands of movies and tens of thousands of TV titles that Comcast currently makes available to subscribers on-demand across a wide range of platforms. Since the Xfinity for Xbox service requires users to have at least one TV in the house connected to a Comcast set-top box, the new Xbox app presumably will also include access to the new Netflix-like Xfinity Streamix subscription service Comcast recently introduced that lets Comcast Digital Video customers stream thousands of additional movies and TV shows on-demand through their TV set-top box.

Best of all, according to Comcast’s FAQ page on the new Xbox app, Xfinity content streamed through Xbox Live will not count toward subscriber’s 250 GB per month data cap, because the content “is being delivered over our private IP network and not the public Internet.”

As the Ars piece points out, that could give the Comcast service a big advantage over other video streaming apps, like Netflix and Hulu, whose bits do count against Comcast Internet subscribers’ data caps. Under the terms imposed by the FCC and Justice Department on  Comcast’s merger with NBC Universal, however, Comcast is not supposed to disfavor third-party online video distributors’ services on its last-mile network, or to favor its own content services.

So here’s the question: Does restricting its Xbox Live content to its “private IP network,” rather than the public Internet, mean the new service is not subject to the non-discrimination requirement under which Comcast is supposed to operate? And is that why Comcast is doing it that way?

That’s not meant as an accusation. I honestly don’t know but am curious.

The Journal may have buried the lede a bit, though, at least as far as content owners are concerned. Three grafs from the bottom of a long piece the paper mentions that AT&T is “studying a plan to give app developers and content providers the option to pay for the mobile data their products use, thereby keeping those apps and videos from counting against a user’s allotment of data, kind of like an 800-number for apps.”

As the website MacRumors put it, the plan “would presumably allow bandwidth usage for certain apps to be free. For example, watching shows from a TV network app such as ABC Player might not count against your monthly bandwidth allotment. Instead, ABC would pay AT&T (or Verizon) for the mobile bandwidth consumed. In return, ABC would likely see increased usage of their app to watch shows and more revenue from in-show advertising.”

Whoa. That would certainly change the economics of mobile video in a major way. At a minimum, content owners would need to bake the added cost of bandwidth into whatever monetization scheme they are using for mobile video, whether by increasing what they charge advertisers — if that were even possible — or increasing what they charge consumers, which would certainly depress viewership. Either that, or the content owners could decide to eat the bandwidth costs themselves, which would certainly be unappetizing.

The pay-to-play plan could also lead to a major clash between providers of wireless and wired broadband. Under the FCC’s current net neutrality regulations, wired broadband providers generally are not permitted to favor some bits over others, or accept payment for priority treatment.

Per the agency:

A commercial arrangement between a broadband provider and a third party to directly or indirectly favor some traffic over other traffic in the connection to a subscriber of the broadband provider (i.e., “pay for priority”) would raise significant cause for concern.

The agency imposed no such restriction on wireless broadband providers, however. Thus, wireless providers could charge content owners to deliver their bits while wired providers cannot. And as even wireline providers run up against the capacity limits of their networks in the face of increased video streaming, leading some to impose their own data caps on users, the difference in regulatory treatment could become a very sore point among broadband providers.

The danger for content providers is that wireline network operators may start to look for their pound of flesh where they can get it. That could lead to more clashes such as the ongoing dispute involving Comcast, Netflix and Netflix’s CDN, Level 3.

Certainly worth keeping an eye on for anyone contemplating the scalability of the streaming video business.

Perhaps Diller just craved the spotlight, and wanted to launch in center of the media universe. But a more likely reason for picking New York is that it’s the seat of the federal Second Circuit Court of Appeals, which in 2008 handed down an opinion in Cartoon Network, et. al. v. CSC Holdings, better known as the Cablevision remote-DVR case.  That case, in which the cable operator’s cloud-based DVR service was challenged unsuccessfully by the networks,  is rapidly becoming the Sony Betamax case of the digital era: a foundational  legal precedent that shapes all subsequent innovation around technology and copyrighted content, both in the U.S. and around the world.

Not surprisingly, the networks and broadcasters that have now sued Aereo would prefer to have no part of the Cablevision case. Neither complaint mentions Cablevision explicitly, and only one even mentions “cloud-DVR” recordings at all, and then only to dismiss the issue as irrelevant. Instead, the complaints focus almost entirely on the live-streaming feature of Aereo’s service, which the networks consider to be a cut-and-dried case of unlicensed retransmission — in copyright terms a public performance — of their copyrighted programs.

Diller isn’t about to let them forget it, though. Aereo’s terse reply and counterclaim filing mentions exactly two prior cases to support its position: Betamax and Cablevision. By incorporating Cablevision into a counterclaim, Aereo has made the case impossible for the court to ignore, even it were to find some way to rule in favor of the broadcasters without addressing it.

Not being a lawyer, I can’t offer a qualified opinion on the legal merits of the respective parties’ claims. But I do know this could be a very dangerous case for the networks should they lose.

The reason it’s so dangerous can be found in Aereo’s FAQs. Despite the broadcasters’ characterization of Aereo’s service as a simultaneous retransmission of their signals over the Internet, Aereo’s system does not appear to work that way, at least in Aereo’s telling. From the FAQ:

What happens when I tune to a live program?

When you tune to a live program from the Guide, you instruct your assigned antenna housed at the Aereo data center to tune to the channel the show is on and pass the digital broadcast stream to your remote DVR. The DVR consists of several components that process the program stream and prepare it for you to stream it to your internet-connected device. Your DVR records the program as you watch it, giving you the ability to pause or rewind the live stream. When you record, you record three separate unique copies of the show, each in a different bit rate optimized for different streaming conditions. The lowest bit rate file is ideal for streaming over 3G connections. The medium rate file will work well over most Wifi connections. The highest rate file is intended for really fast broadband connections. While watching, you can choose the Video Quality on your device. If you select “auto” you will automatically choose the best bit rate for your current network conditions. When you are finished watching the show, your recorded files are removed from your DVR and do not count against your DVR storage space allotment [emphasis added].

From that, it does not appear that Aereo performs a simple, on-the-fly re-encode and transmission of the broadcast signal (which might in fact be an infringement). Rather, each Aereo session — by design — creates a recording of the program being watched (actually three recordings). What the user actually gets to watch, technologically speaking, is not a “live” stream of the broadcast but on-demand stream of a personally directed recording.

That bit of technical legerdemain is clearly meant to bring Aereo within the scope of the Second Circuit’s opinion (cert. denied) in the Cablevision case, which held that playback of a discreet, individually initiated copy of a program, even if from a remote server, is not in fact a public performance. Instead, it’s no different, from a copyright perspective, from playing back a recording from a set-top DVR.

The networks no doubt will argue that Aereo’s legerdemain is just that: a subterfuge meant to disguise what is in every practical — and legal — sense a simultaneous retransmission. And in fairness, Aereo’s contention that this case involves “nothing more than the application of settled law to updated technology” is clearly a stretch. Cablevision, after all, was already a licensed retransmitter of the copyrighted works at issue in that case, and the playback of recorded programs occurred over Cablevision’s own, closed network, not over the public Internet.

Should the networks lose on that point, however, the effects could be devastating. It could establish that all a service provider need do to make a retransmission legal is to bounce it off a cloud-based DVR before passing it on to the user. That, in turn, could put a whole host of distribution scenarios the networks and content owners are no-doubt counting on to be license-able events outside the realm of license-able events.

Even if they prevail against Aereo, moreover, networks and rights owners are already losing the retransmission argument outside the U.S. Last month, the Federal Court of Australia — citing the U.S. Cablevision case — ruled in the Optus TV case linked above that a mere two minute delay between the remote recording of a broadcast and its streaming playback is enough to make it something other than a simultaneous retransmission and therefore not infringing. An Irish court has narrowed the gap further in that country.  A district court in New York narrowed it further in a case involving the use of Slingbox to stream Irish football games from Dublin to a pub in the U.S.

Another loss in the U.S. would likely mean the rest of the world falls as well.

As Pew notes, the online audience for news is enormous and still growing rapidly. The top 25 news sites in the U.S. topped 342 million average monthly unique visitors in 2011, up 17 percent over 2010. At the same time, online advertising continues to grow at a much faster pace than the general ad market. Total online ad spending hit $32 billion last year, up 23 percent, and online ads now account for 20 percent of total ad spending.

Those two trend lines ought to ad up to good news for online publishers. But as Pew also notes, publishers themselves are capturing very little of the added value created around their content by all that additional advertising revenue. Instead, five top technology providers — Google, Yahoo, Facebook, Microsoft and AOL — captured 68 percent of the online ad revenue in 2011, up from 63 percent in 2010.

The contrast underscores the problem of value capture that confronts nearly all content publishers online. What Google, Yahoo and the rest have in common, besides a robust online advertising business, is that they enable their users to do stuff with content: find it, file it, share it, personalize it, comment on it, etc. The technology providers whose digital tools enable that activity are then able to monetize their users’ behavior around the content rather than trying to monetize the content directly, as publishers traditionally have done.

Hard as it is for many content owners to accept, content itself has little intrinsic value on digital platforms. Instead, value is created ad hoc, by users at the edge of the network rather than publishers at the center, using tools that enable them to personalize the experience. Inevitably, the organizations that end up capturing the lion’s share of the value that users create for themselves are those that provide the tools by which it is created.

What publishers really need, more than new laws and new digital locks to restrict the use of their content, is better tools to help them capture the value created by users around their content. Or at least better deal structures that allow them to participate in the value exchange between users and technology providers at the edge of the network.

The device itself isn’t really much of a mystery. Google pretty much told us what it would be last year, at Google I/O 2011, when it showed off a pair of “Tungston” devices. Among other things it does, Google described the Tungston as an “end point for Google Music Beta,” that would retrieve music stored in users’ Google cloud locker and stream it wirelessly around the house.

That really can’t be all there is to it, however. For one thing, as noted by Tom Cullen, co-founder of Sonos, which already sells a device for streaming music wirelessly around the home, his company’s total annual revenue is only about $200 million a year, which would barely register for Google, which raked in $38 billion last year. For another, the “home entertainment device” referred to in Google’s FCC application is not the only device it’s looking to test at the moment. Google has also filed an application with the agency to test a “next generation communications device” in the same four markets where it wants to test its entertainment device. It has also sought permission to test “an integrated access point as part of a fiber residential gateway.”

It seems pretty clear that Google’s “home entertainment device” is part of a broader platform strategy involving multiple devices and services. The Tungston devices demo’d last year, in fact, were running Google’s Android@Home software framework, which allows Android devices to communicate with other devices wirelessly, even if those other devices do not have WiFi capability. The Android@Home architecture also supports a broad range of functionality thanks to its underlying Android app support. That’s consistent with language in the testing applications for both the entertainment and communication devices referring to the testing of “network performance and its impact on applications running on the device.”

One key to understanding what’s going on can be found around the 43-minute market in the video below from last year’s Google I/O presentation. In it, Google demonstrates a Tungston device’s ability to add content from a CD to your library instantly simply by tapping an RFID-tagged CD case on the device. In other words, it’s a two-way system. Tungsten isn’t simply about streaming content from the cloud but ingesting content from the home and adding it to a cloud locker.

Another key can be found in Google’s petition to the court to intervene in the ReDigi case. I’ll have more on that case in an upcoming post. For now, it’s notable that Google’s main concern in ReDigi was the potential impact of a preliminary injunction against the second-hand MP3 seller on “the legal doctrines underpinning the ‘cloud computing’ industry.”

The petition cites two cases as forming the legal foundation of cloud computing: the Cablevision remote DVR case and Sony Betamax case, both of which involved the user-directed recording, storing and later playback of video content.

The Cablevision case in particular, Google said it its petition,

established that a service provider does not directly infringe copyright by operating a service that permits users to make copies, even if some of those copies may be infringing; the direct infringer (if any) is the user who supplies the “necessary element of volition” to cause the copy to be made…Second, Cablevision confirmed that a performance is not “public”—and therefore does not invade the copyright owner’s exclusive right under 17 U.S.C. § 106(4)—if it is transmitted from a copy of the work that is uniquely identified to a particular user, even if other users receive transmissions of the same work from different copies.

The court ultimately rejected Google’s request to intervene in the case. But Google’s keen interest in the legal issues at stake suggests it has ambitions to offer a service “to make copies” of video content and store them in the cloud.

Whatever Google is building, it’s likely to involve a platform for ingesting, storing, managing and restreaming of music, video and presumably other types of content, to and from the cloud, from multiple sources and across multiple devices. It will be based on Android and will leverage the Android@Home framework to incorporate non-Android, non-connected devices.

It may in the near term include Google selling consumer devices under its own name. But I doubt that’s part of the long-term strategy.