How big cable uses its muscles to prevent online competition

Rumors that Apple (s AAPL) may launch a full-fledged TV set to finally take on the TV business have been around for years. So why hasn’t Apple launched such a product yet? One reason could be that cable companies don’t want it to.

Bloomberg reported Wednesday that Time Warner Cable has been using its negotiating muscles to keep TV networks from licensing content to Apple and others. An industry insider who declined to be named confirmed this account in a conversation with GigaOM, saying that the company has been aggressively pushing for these kinds of clauses in its recent contract negotiations.

At the center of the dispute are so-called virtual cable operators — companies that operate pay TV services without having any physical infrastructure of their own. Instead of using their own satellites, cables or phone networks to get TV signals to the consumers, virtual operators would simply stream their programming over the internet.

There have been reports that Apple was considering a plan to launch such a virtual operator in the past, and other companies have looked into launching these kinds of businesses as well. One of the more notable efforts is Intel’s (s INTC) forthcoming TV service, which the company wants to launch before the end of the year.

To compete with traditional cable, these operators would have to be able to offer much of the same programming. And that’s something that cable companies apparently want to prevent. Richard Greenfield of BTIG Research first reported Tuesday that at least one or more of the existing operators had added clauses to their contacts with TV networks that would prevent the networks from licensing their content to companies who don’t control their own infrastructure.

Bloomberg was able to get Times Warner Cable CEO Glenn Britt on the record about contracts featuring these provisions:

“We may well have ones that have that prohibition.”

It’s worth pointing out that cable companies wouldn’t be able to keep all kinds of programming inaccessible with these kinds of provisions. NBC and Comcast (S CMCK) are specifically barred from these tactics as part of their merger conditions, as Greenwald points out. However, other TV networks don’t have these kinds of restrictions, and some may be inclined to follow the demands of cable companies in order to protect their growing retransmission fee revenue stream.

In the past two years, we have seen a number of disputes arise between networks and operators about the amount of money operators have to pay to carry certain channels. In the end, most of these disputes ended with networks having the upper hand because operators simply couldn’t afford to lose key programming. But it’s possible that barring competitors like Apple and Intel from access to the same content is one of the benefits that networks now have to throw in to sweeten those deals.