As I see it, cable companies survive, charging 1 - 2 orders of magnitude more than it would cost for a neighborhood coop to do it for themselves, because they have a protected monopoly.
But can a small town (or neighborhood which incorporates itself as a small town) choose to create their own coop that functions like a cable company instead, and designate it to be their cable provider?
Basically, you need one reasonably high antenna tower, with tuned elements aimed at local broadcast towers. You combine the signals, run it through distribution amplifiers and splitters, and use isolating transformers to prevent ground loops (or eliminate ground loops more expensively with optical cable). You may need a little frequency shifting to handle stations that happen to have the same frequency.
And split a shared high speed Internet connection.
People who want more channels and programs can subscribe to Hulu and Netflix ($8/month each), and perhaps to other such services.
Initial cost might be a few hundred dollars for the antennas and routers, plus $50-$100 to run pro-grade cable to each home. (Somewhat more to run cable inside people's homes, and the cost of a router if needed.) Maintenance could be a very part-time job for one person. Basic service could then be a few dollars a year, a bit more for people who want fast Internet.
Maybe there would be a way to broadcast timed feeds from Hulu and Netflix, if you encrypt them so only subscribers can use the feeds, so everyone doesn't need broadband to see them.
Almost everyone can replace their phone connections with Skype or MagicJack (and competitor) devices, which would only add a few dollars a month. You could even add neighborhood wireless Internet access points, which would let those devices act much like cell phones.
You can hire inexpensive local high school and college students to run the whole thing.
Compare this to commercial cable and phone companies, which typically gradually raise their costs to homes with about 3 TVs + DVRs and an Internet connection fast enough to stream video to over $200 / month, if our home is typical. And commercial satellite TV companies (like DISH), which start out fairly cheap (as do the cable and phone companies' intro offers), but lock you into long-term contracts with NO LIMIT WHATSOEVER on how much the prices can go up during the contract period, if I read their offers right.
Is this already happening anywhere?
What are the legal and practical issues?
Are there companies which make it easy for towns to do this, by providing kit-like equipment packages and step-by-step instructions? There should be...