[pedalpete]

I think you're assuming the pay per view model would not change as well. Pay-per-view makes a fortune, but only appeals to a small set of the audience due to the currently high-costs. However, if we use the superbowl as an example (huge adverstising costs, and large audience).

110 Million people watch the superbowl, a 30 second commercial costs about $3 million (time slot fee only). Are there more than 30 commercials during the superbowl? I couldn't find that number, but 30 seems like a lot, so let's go with that. The revenue per viewer is about $1.20. So even if the cost to watch the superbowl was $4, the broadcaster would still be making more than they currently are with the advertising model.

Where this breaks down is the amount of time people spend channel surfing. I think as people channel surf less, they'll watch less, which is why the model of paying directly for each piece of content is a challenge.