How do television networks and radio stations make profit?

I understand that through sponsorships and commercials they can turn interest from investments, but how did television and radio make money when they first started?

I can't imagine that sponsors and commercials pay for ALL expenses (employee wages, production costs, etc.).

Where is this revenue coming from?

If a T.V. show/network/channel or radio station receive more viewers/listeners than their competitors, they're deemed successful, but how does this translate to revenue? We, as viewers and listeners, only pay the electric bill when watching t.v. (and the cable bill, for more channels).

I'll break it down into the segments for you - but the networks and stations all make their money from advertising. You should note that television advertising is a multi-billion dollar a year business. It's much bigger than you're giving it credit for.

Television networks: The best approach is using an example. For example, ABC wants to creat Lost. They pay for a pilot and make a few episodes. They air the show on all ABC affiliates in prime time - when most viewers are watching and when advertising costs are very high. Since it's in prime time, they normally keep all but two or three of the commercial spots that air during the 1 hour show. This is true if they own the local ABC affiliate or not. Then they package a national advertising deal with Pepsi or Bud Light or Ford or whatever and sell it. They make a boat load of money and they made even MORE than that when it "first started" . . . . today, it's tougher on TV b/c of the internet and cable channels, etc.

Television and radio stations make their money selling spots during the rest of the day. The Fox station in Baltimore, for example, makes MOST of it's money selling spots during it's self-produced news programming. It makes it's second most money on the show that airs right after American Idol is over because many people just keep it on that channel. Advertisers know this and they pay for that time. TV stations enjoy a great margin - usually in the 30% - 40% range. Meaning they net 30 cents for each $1 of advertising they sell.

Meanwhile, grocery stores generally net 2.5 cents for each $1 of milk and bread that they sell. Huge difference.

Anyway, back to your second question - the revenues for the national spots come from Ford, Pepsi, Nike, etc. The revenues from the local spots come from Billy Bob's Used Cars and Janey Jane's Mortgage Company (you've seen the cheesy commercials!).

And your third question - the TV shows are rated by Neilsen and the Radio stations by Arbitron. Those companies provide the advertisers with how many eyeballs or ears are tuning in and that drives up the cost per 1 spot on that station versus a station with fewer eyeballs. So if Fox in baltimore is airing Simpsons re-runs - that gets more eyeballs than the ABC in baltiore who's airing re-runs of Frasier. So people spend more to get their spots on the Simpsons.

If you look up Nexstar or Young or Sinclair on the internet (yahoo finance) you can see how much money they make selling space on a frequency of the spectrum!