For more than 60 years TV stations have broadcast news, sports and entertainment for free and made their money by showing commercials. That might not work much longer.
The business model is unraveling at ABC, CBS, NBC and Fox and the local stations that carry the networks' programming. Cable TV and the Web have fractured the audience for free TV and siphoned its ad dollars. The recession has squeezed advertising further, forcing broadcasters to accelerate their push for new revenue to pay for programming.
That will play out in living rooms across the country. The changes could mean higher cable or satellite-TV bills, as the networks and local stations squeeze more fees from pay-TV providers such as Comcast and DirecTV for the right to show broadcast TV channels in their lineups.
The networks might even ditch free broadcast signals in the next few years. Instead, they could operate as cable channels -- a move that could spell the end of free TV as Americans have known it since the 1940s.
Fox is pursuing its strategy in public, warning that its broadcasts -- including college football bowl games -- could go dark Friday for subscribers of Time Warner Cable, unless the pay-TV operator gives Fox higher fees. For its part, Time Warner Cable is asking customers whether it should "roll over" or "get tough" in negotiations.
The traditional broadcast model works like this: CBS, NBC, ABC and Fox distribute shows through a network of local stations. The networks own a few stations in big markets, but most are "affiliates," owned by separate companies.
Traditionally the networks paid affiliates to broadcast their shows, though those fees have dwindled to near nothing as local stations have seen their audiences shrink. What hasn't changed is where the money mainly comes from: advertising.
Cable channels make most of their money by charging pay-TV providers a monthly fee per subscriber for their programing. On average, the pay-TV providers pay about 26 cents for each channel they carry, according to research firm SNL Kagan. A channel as highly rated as ESPN can get close to $4, while some, such as MTV2, go for just a few pennies.
With both advertising and fees, ESPN has seen its revenue grow to $6.3 billion this year from $1.8 billion a decade ago, according to SNL Kagan estimates.
It has been able to bid for premium events that networks had traditionally aired, such as football games. Cable channels also have been able to fund high-quality shows, such as AMC's "Mad Men," rather than recycle movies and TV series.
That, plus a growing number of channels, has given cable a bigger share of the ad pie. In 1998, cable channels drew roughly $9.1 billion, or 24 percent of total TV ad spending, according to the Television Bureau of Advertising. By 2008, they were getting $21.6 billion, or 39 percent.