As someone who writes software for the film and television distribution industry (indeed one of my customers reversions most of the world's content for airline IFE systems), I can tell you that there is a lot of preparatory and anti-piracy work that goes on before the content is sent to the airlines.

Studios and distributors are very paranoid about this sort of stuff. The areas preparing this stuff are normally completely isolated from the internet and often have a restricted personnel list, and before the studios send the content out they will apply their own anti-piracy measures to it. Commonly, this is an invisible watermark burnt into the image - not visible to the human eye, but a unique code that is traceable back to the person or company that the content was sent to, so if the content is leaked they can trace back the leak. This watermark survives multiple generations of compression and copying, and if the content is filmed on another camera they can pick up the watermark in the image too. The distributor (normally the company that sends it to the airline, who have received it from the film studio or other middle man) will then apply their own measures that will often include a visible watermark and other steps too.

They'll also do treatment on the content - as Jimmie76 says, this can be removing unsuitable scenes (called compliance editing), but also technical treatment - they will typically equalise and compress the audio, so that a) it sounds OK through airplane headphones and b) it sounds OK with all the background noise. They will typically reduce the dynamic range of the content too. Often there will be some colour legalisation and reduction too for the reduced capabilties of airplane IFE screens. They may also add subtitles and other things. They also then heavily, heavily compress the image for airplane systems.

It's a big business and there's a whole heap of work that's done before it gets loaded onto the IFE!