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Content Owners Change Channels

"Recipe Rehab," a new Saturday-morning show that ABC debuted this month, has all the ingredients of a hit. In 30 minutes, chefs take unhealthy favorites such as gooey macaroni and cheese, or a burger-and-fries combo, and re-engineer them into healthy, tasty meals.

It also launched with an existing fan base.

A shorter version was already popular on Google's (GOOG) YouTube video sharing site. It's the first of Google's premium offerings to make the leap to a traditional network show.

The deal, a milestone for the search giant trying to position itself as a hothouse of high-quality programming, also illustrates some of the massive shifts taking place in the media landscape.

Competition is pouring in from once-unlikely sources. In addition to Google, traditional networks are up against tech giant Apple (AAPL) with its iTunes song-and-video-download store and e-commerce behemoth Amazon.com (AMZN), which has its own streaming video service.

At the same time, networks are driving new sources of revenue selling their programming to some of those competitors, including the pioneer in the streaming-video field, Netflix (NFLX) .

Long term, this is a big problem, says Tony Wible, a Janney Montgomery Scott analyst.

"They perpetuate this system of selling content to people that are destroying their biggest asset, which is their advertising business," Wible said.

He likens it to the movie studios' early days of selling DVDs to Netflix or Redbox, the rental kiosk operator owned by Coinstar (CSTR). At first they welcomed the sales of a few extra discs. Now they're fighting those companies over customers who might opt for a cheap download or disc rental over buying the movie.

"It's now the TV executives' turn to learn that painful lesson," Wible said.

Media Stocks Booming In the meantime, the new revenue sources and resurgent advertising dollars on the local level are driving a range of media companies and sectors higher.

IBD's Media-Diversified industry group has 19 stocks, including leaders such as Scripps Networks (SNI), with a top-possible IBD Composite Rating of 99. Scripps owns flagship cable networks HGTV and Food Network, which each draw more than 1 million households a night.

The owner of ABC, Walt Disney (DIS) is No. 2 in the group, with a Composite Rating of 92. Disney relies on a diversified business model. It has a lock on many sports fans' dollars with its ESPN channels, and wins families' cash with its theme park business.

Overall, that Diversified Media group was ranked No. 13 among the 197 tracked as of Friday, up from 125 six months ago.

The Media—Radio/TV ranked No. 18, from 152 just six months earlier. Its top name, Sinclair Broadcast (SBGI), has grown through acquisitions and now owns or services 74 TV stations including affiliates of Fox, ABC, CBS, CW and NBC.

While consumers are watching more shows on their own time — using digital video recorders to fast-forward through commercials, or streaming commercial-free versions of their favorite shows, Americans still spend about 4-1/2 hours a day in front of live TV, according to media tracker Nielsen.

And broadcasters are winning right now on a potent mix of strong advertising around the London Olympics in August, massive media buys ahead of November's elections and ongoing ad spending by resurgent automakers.

"It's really a perfect storm for local television," said Douglas Arthur, media analyst with Evercore Partners.

That sets up some tough comparisons in 2013. But some of those same drivers could return in 2014, with a midterm election and the Winter Olympics, he said.

Printing Money Most surprisingly, perhaps, is the performance from IBD's Media-Newspapers group, which suddenly no longer seems to fit the stale joke of being black, white and red all over. The group is ranked No. 17, up from 109 six months ago.

And while it doesn't have clear leaders, New York Times Co. (NYT), with a Composite Rating of 95, is up more than 30% since early August, on its strong push in digital subscriptions.

Gannett (GCI), publisher of USA Today and a slew of local dailies, last week cited the Olympics and political advertising for the 36% pop in revenue in its broadcast division. But its publishing side also posted its first circulation revenue increase since early 2007, as it erected more pay walls in front of its papers' digital content.

Arthur says newspapers are getting "belated" respect from investors for the tectonic shifts they've made away from relying on fickle advertisers to pay the bills, toward getting readers to pay for content.

The New York Times will post Q3 results on Oct. 25. But in its second quarter, circulation revenue surged 8% companywide to $233.3 million. That's approaching total advertising revenue, which declined 6.8% in the quarter to $244.3 million.

At its flagship New York Times newspaper, circulation has already topped advertising as the largest source of revenue.

Gannett, which had resisted that pay-wall model, has since embraced it and has rolled it out at three-quarters of its markets, and expects to complete the process by the end of the year.

"People want and find great value in our content and are willing to pay for it," Gannett CEO Gracia Martore said in a call with analysts.

Gannett has also found that satellite and cable companies are willing to pay for network TV content.

Earlier this month the company reached a deal with Dish Network (DISH), averting a potential blackout on the satellite provider of Gannett-owned ABC, CBS and NBC stations in 19 cities, including Atlanta, Denver and Washington, D.C.

Gannett had sought more money to compensate for potential backlash from advertisers because of Dish's Auto Hop feature, which makes it easier to skip commercials.

Neither side disclosed the terms of the deal they signed, but during the public spat, Dish said Gannett had wanted a 300% hike in fees.

Arthur says networks are increasingly demanding some of that money from the station operators, like Gannett. But cable and satellite companies can only pass so much of those rising costs on to their consumers.

Cable Costs Run Amok Wible points to Comcast (CMCSA) (in IBD's Telecom Services-Cable/Satellite group). Costs per subscriber have climbed faster than revenue per subscriber, meaning the company has eaten a large portion of the programming fee increases.

He said that current trajectory of networks and studios demanding higher payments for their programming is unsustainable, and ultimately will drive customers to streaming services, which diminish networks' advertising strength.

"I think there's too much pressure on the consumer when your cable bill is as much as a car payment," he said.

What could change that trajectory

The government could step in with regulations affecting programming pricing. Or powerful juggernauts could launch a new service that changes the landscape, the way Apple helped reshape the music industry with iTunes.

And then there's new technologies and startups.

One, Aereo, grabs free over-the-air broadcasts and delivers them to subscribers' devices over the Internet. The startup is backed by Internet conglomerate IAC/InterActiveCorp (IACI). TV broadcasters have launched a legal broadside against the service, joined by cable giant Cablevision Systems (CVC).

Another young company, Boxee, has unveiled a $99 set-top box that combines streaming apps, free over-the-air broadcasts and a cloud-based DVR.

It's not entirely clear which services will survive the inevitable challenges from the industry's heavyweights, or which will be embraced by consumers.

"There's a lot of permutations in the way this stuff could unfold," Wible said.