Some say it’s just that people now lack the attention span for old-style television or that our tastes have changed.
Most insiders point out that reality shows cost much less to make than scripted shows, and, they argue, this is just a profit play by the broadcast networks.
However, he astutely points out that if reality shows are popular because they are cheap to make, why weren't they popular 20 years ago. As Goolsbee says, "Surely the broadcast networks wanted to save money back then, too."
Goolsbee then cites Harvard economist Richard Caves, who comes up with the explanation that reality shows are popular because there are so many TV choices with the proliferation of cable and satellite:
Any opinions on this question of reality show popularity?
He points out that such incentives depend on the size of the potential market. The programming is a fixed cost — networks pay for the programs even if nobody watches. If paying an extra $1 million to get a star onto a show, for example, raises every customer’s love of the show by the equivalent of $1, the investment more than pays off if there are 10 million potential viewers. But the $1 million investment would be a terrible flop if there were 10,000 potential viewers.
So the increase in reality programming is not just a matter of broadcasters wanting to save money. It’s that a shrinking potential market gives the networks less incentive to spend money. They can’t recoup it with enough viewers.
(Source: Marginal Revolution)