[scw]

They embed their movies using the Flash Video format (http://en.wikipedia.org/wiki/Flash_Video) which is a container format for multiple audio and video codecs. These are licensed by Adobe, and indirectly to purchasers of their software. Because these codecs are bundled with Flash, to get iPhone support, all the videos had to be transcoded into Quicktime-friendly formats.

Generally, there are licensing fees for each codec (e.g. H.264) which are licensed by software companies for use within their products. The open source implementations of such codecs are in a legal grey area, as technically compiling them means you should pay for their licensing.

[GHFigs]

A clarification: H.264 videos on YouTube don't use FLV containers. Flash 9 and up supports H.264 in MP4 containers natively. The iPhone app simply streams these directly.