How do cable companies make their money?

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Just how, exactly, do cable TV companies make their money?

That question may lie at the heart of the FCC's ongoing review of the proposed cable industry megamerger between Comcast, which owns NBCUniversal, parent company of CNBC, and Time Warner Cable. The answer, it turns out, is neither simple nor clear-cut, especially in a time of rapid technological change and shifting TV viewing habits.

The economics of television started out fairly simply. Back in Don Draper's day, broadcast networks sent their signal filled with entertaining shows to anyone willing to watch their advertising, which paid most of the bills. If you lived in a place where the signal didn't reach, you could pay a cable company a monthly fee to bring it to you over a wire.

Then came "premium" channels—like HBO and Showtime—that let you watch TV over the cable without watching ads. Soon "broadcasters" agreed (for a fee) to send their shows over the cable.

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So now program producers generated two streams of revenue—ads and subscription fees—collected by cable operators who packaged programs in "bundles."

Cable operators also get paid more than once—for the service they bring to your TV, the set top boxes you rent, the program packages you buy and the local ads that pop up in basic program channels you watch.

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Just how much of your monthly payment goes to the program producers is the subject of periodic negotiations between cable companies and program networks. (When those talks break down, both sides take out angry full-page newspaper ads and—occasionally—one side or the other pulls the plug until the network can come to terms.)

All went—relatively—smoothly in the television industry until the Internet came along. That meant a whole new group of companies—including phone companies charged a monthly fee for a separate wire to your home—could sell you access to the Web. It didn't take long for the cable companies to figure out to sell phone service to their TV subscribers.

For the first couple of decades or so, the Internet wasn't technically ready for prime-time video, so until fairly recently there wasn't much to watch. But as the speed and quality of "broadband" improved, video moved online. Now, you can download or stream TV shows and other videos without subscribing to cable television.

The rapid rise of Netflix—and now Amazon video, Hulu and other streaming services—has prompted some cable TV subscribers to "cut the cord" and watch all of their TV over the Internet.

Most cord cutters are hoping to avoid paying for "bundled" channels they don't watch. Given the way cable companies and networks carve up your monthly bill, lots of people pay for TV they don't watch. ESPN, for example, reaches only 3 percent of the total cable audience, but gets paid 18 percent of cable subscription fees, according to MoffettNathanson Research. Fox, by contrast, reaches 13 percent of the cable TV audience, but gets only 3 percent of subscription fees.

But cord cutters don't leave cable TV companies empty-handed. Many of those subscribers are still paying the same company for Internet-access cable TV shows. But cord-cutters don't pay the subscriber fees that get passed along to individual program networks.

With subscribers heading for the exits, some programmers are experimenting with offers to let you "unbundle" the fees they collect —and cut out the cable operator. Last fall, Time Warner announced it would launch a direct HBO subscription that you can buy without signing up for a cable TV package. CBS is offering an All Acess streaming subscription that lets you watch its shows over the Web for $6 a month.

This shift to streaming services that bypass cable operators—known in the industry as over-the-top viewing—has been accelerated by brisk sales of devices like Roku that let viewers bundle their own streaming services in one place. That trend could accelerate if and when Apple unveils its long-awaited entry into the fray.

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Some observers think the tech giant could do to TV viewing what the iPod did to the music industry. Others aren't so sure. It remains to be seen whether a la carte program fees would be less than the bundled price cable subscribers currently pay.

As if all this upheaval wasn't enough, the cable TV industry is now confronting the prospect of an even bigger shift in their business model as "cord nevers"—millennials who grew up with smartphones—bypass cable companies altogether and access the Internet—and watch videos—on their phones.

That poses a threat to everyone's business model—from companies like HBO and ESPN that sell premium content that's expensive to produce—to the cable companies and wireline phone companies that serve up Web access to homes.

As the audience turns more of its shrinking attention to videos on Facebook and YouTube, an entirely new "free" video model is emerging, "where content is being created and distributed entirely outside the existing ecosystem, often at a fraction of the cost of traditional linear TV," said MoffettNathanson analysts in a recent blog post.

"Our suspicion is that the millennial cord cutter isn't waiting around for just the right package of cable channels that only their parents' watch," they wrote.