Just thinking about some numbers here.
Say digital cable runs about $80/month. Times 12 months, that’s $960.
A TV season is usually 22 episodes long. 22 episodes times $1.99/episode equals $44.
960/44 = ~22 shows. If you only watched weekly shows, and every show you watched were available for download on iTunes, you’d save money by not having cable if you could keep your viewing below 22 shows. I watch a lot of TV, but I’m pretty sure I could swing that.
Still, I can’t see downloads entirely replacing broadcast TV. Daily shows would probably have to work differently. News shows aren’t worth much unless they’ve live. Talks shows, both daytime and late-night, get stale if you don’t watch them within about three days in my experience. Soap operas would probably do okay, because people could easily pick up the ones they missed for maybe $0.39 per episode.
Networks apparently pay between $50,000 and $1,000,000 per episode for a TV show. At $1.99/episode, a given network would only need 25,000 for (cheap reality shows) to 500,000 viewers (for hour-long dramas) to download their shows. Popular shows tend to draw audiences in the millions, and even unpopular ones scare up numbers in the hundred-thousands.
Granted, cable companies are now major providers of broadband internet, so it’s not like they’re going obselete, but I can easily see a shakeup going on here. Give me internet and five channels on which to watch the news, The Daily Show, and reruns of The Simpsons and Seinfeld (and I guess sports). I’ll download the rest.