The answer is the Cable Television Consumer Protection and Competition Act of Freaking 1992 -- a law that, in the interest of keeping broadcast television alive, said no cable provider can go to an out-of-area broadcaster of the same content for a cheaper price. Meaning that local broadcasters don't have to compete with those other cities.
It was a totally reasonable idea in 1992, a strange time when people couldn't see high definition tits in under six seconds with a swipe of their cellphone. So while the rest of the world has vaulted ahead into the 21st century, TV broadcasting is operating under regulations invented when Cheers was still on the air.
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Woody might actually get pot legalized before they even try to fix this.
And now that there are localized blackouts, it's either all or nothing -- meaning that Time Warner can't simply take the daytime sports and news broadcasting from CBS 8 over in San Diego and show it to LA, because broadcast TV still thinks viewers will accept their fate rather than just steal that shit.
In other words ...
It's the Dying Gasps of a Dinosaur Industry
While it takes two to not tango, both sides of every blackout appear to go into it assuming the other will break when customers scream to get their Two and a Half Men reruns back. CBS is currently using a billboard in the middle of Times Square to protest Time Warner, who in turn has been broadcasting on CBS a blacked-out screen with a message saying that the station has demanded "outrageous increases for programming." It's as if they think people are out there desperately toying with their radio antennas hoping for any news about their blackout and not, say, just downloading their shit.
"Only the most highly trained of hackers can do that, right?"
In fact, CBS even blocked their legal online content from Time Warner customers, ensuring that the only way people could get Under the Dome was from a site specializing in breast gif advertising. And boy did they, as CBS programming piracy spiked considerably the moment the blackout began. Weird ... it's almost like these arbitrary barriers that used to wall off content are now made only of wishful thinking and hilarious anti-piracy PSAs.
Which they probably used pirated material to make.
So while two archaic giants use the townspeople as fodder in their petty squabble, we can all look forward to watching them beg for us to not switch to Google Fiber in a few years -- a cheap, high-speed Internet and streaming service that Time Warner thinks no one will want.