When there were only three networks and a couple of channels for syndication, the rules were a little more exact. The three networks were called "The Big Three" and were comprised of CBS, NBC and ABC. The shows in the early days needed sponsors, advertisers who essentially paid for a great deal of the production costs to significantly feature their products on the show. For instance, "I Love Lucy" would be sponsored by a cigarette company and not only would the characters smoke that brand on the scripted part of the show, but would also do commercials between acts that featured the product. In this way one advertiser has a great deal of creative control over what was produced for the show itself. After a substantial amount of these shows was produced, the production company could offer them into syndication. They were sold as a group and became available to run on the syndicated channels networked throughout the country.
Syndication channels, usually bundled with channels local to one area in the country, purchased packages from the TV production companies to rerun shows on their channels. Movies, in edited form, were also purchased to fill up the air time. Likewise, local TV shows, usually children's shows or game shows were made for small amounts of money and were broadcast with local commercials for local businesses. Even now, syndication is the one major way for TV shows to make back some of the expense they incurred making the shows themselves. For instance, "Mash" made over 250 episodes and after production stopped on that show, these episodes were sold into syndication for multi-millions of dollars. These shows could then be run over and over by the local syndicated channels.
The main backbone of the TV industry is the pitch, even more important now with the incredible popularity of reality TV. A writer and/or producer goes into the head of a network's offices and tells the idea or story of a show to an executive. This lower level executive then pitches the same concept or story to their higher-ups. In the world of Sit-com and hour drama TV (like "Two and a Half Men" or "Madmen" today) if the project gets a go-ahead from the network, a pilot episode is written. This pilot serves as a template for the show and how it will be over several episodes. For reality TV, just the idea and personalities can be pitched since it is technically unscripted.
Production companies are usually a part of a major studio system and they can rely on the bigger coffers of that studio to back what will be losses for the first year or so of a TV show. That debt can be overwhelmingly repaid if the show is a hit. This is because advertisers pay for the 30-second or 15-second commercials they run during the program. This money helps to pay for production that includes paying writers, actors, directors and a host of other talented workers who build the sets, light them, create or find appropriate music and decorate the sets. Still, most network TV shows run at a technical loss until they go into syndication where they are bundled with other shows and sold for multi-millions. That is the basic goal of a show--to recoup and profit from syndication.
HBO is the leader in producing series TV and TV movies that are quality and with no commercial interruptions. Again, most are backed by a major studio and the end result is still to try for syndication. The main draw to cable is the prestige and the ability to attract talent who would otherwise be uninterested in working in TV. If you look closely at the end credits of some network TV shows, cable channels like HBO are in the mix there as well. Basically, the theory of TV production is to make money and make good television. Even with over 200 channels, it is still a challenge and most shows never show a profit.