They charge $80/mo (sometimes much more) and show ads because they can get away with it And we let them. There are also other old economics (like paying for channels you'll never watch) at play that are no longer applicable with the internet.
The netflix model is tricky. On the one hand, it's a constant stream of income. On the other, there is ever increasing licensing fees and questionable return on investment when they produce a new show. I don't know that it's an ideal model, in those regards.
I think (or hope) that what will win out is the ability to vote with your wallet. I watch some shows, and I want the shows I watch to do well and stay on the air. Equally, i don't give a crap about the shows I don't watch. But I think a barrier to that will be the price tag they attach, which will likely not be anything reasonable.
And this circles back to the topic of hollywood: a few companies in control of the majority of the market, inflating prices to line their pockets. But the internet levels some of the playing field, so an independent could come along with little more than a youtube channel and compelling content and bypass all their nonsense. And I think that will be the best thing: competition.
