Zhu Zhu Pets, the furry mechanical hamsters that zoom around, were the runaway hit of the holiday season. One key to their success: a price tag under $10.

The American International Toy Fair begins Sunday. This is the annual event where toy makers show off new offerings that will make their way into next years stockings. Previews from toymakers and interviews with analysts make clear that the focus is on innovation and price. Few toys will retail for more than $100, and most will be priced below $30.

“Theres still going to be some hesitancy to raise prices too much,” said Needham & Co. analyst Sean McGowan. “Last year the feeling was under $30 is where you needed to be. This year there may be more willingness to be $30 to $50. But I dont think well see a wave of $300 stuffed horses again.”

The toy industry performed a bit better during the holidays than it did in 2008, but the season was far from a bonanza. The NPD Group, which does market research, said toy revenue was flat because of discounts during the fourth quarter, but the industry sold 4 percent more toys. For the year, sales edged down 1 percent to $21.47 billion.

Tough times can spawn creativity.

“Ive seen some really innovative products,” said Jim Silver, an analyst at Timetoplaymag.com. He pointed to radio-control vehicles as combining innovation and low prices. One reason theyre cheap: The cars themselves have shrunk, Silver said.

“What the industry has learned is that kids dont necessarily want bigger. Its about the features, not the size of the vehicles,” he said.

For $24.99, Mattel is offering tiny Hot Wheels radio-control Stealth Rides cars that fit in a case that doubles as the remote control. Spin Master has several radio-controlled offerings, including the Air Hogs Vectron Wave UFO flying saucer that can sense objects below it and hover above them. That also costs $24.99.

“Consumers like radio control, they just didnt want to spend $70,” Silver said.

Prices have fallen as technology has advanced, much like the price drops in flat-screen TVs or laptops.

Some other technology-infused toys planned for 2010:

- Hasbro developed Scrabble Flash Cubes. The word game uses cubes that each display one letter digitally. When players fit cubes together, the game can recognize whether they form valid words. And it can keep score.

- Hasbro also expands its Furreal Friends line with smaller Snuggimals that wag their tails and move when you pet them, retailing for about $7.99.

- Jakks Pacific is offering some high-tech spying gear for kids in its Spy Net line, including a video spy watch for $54.99 and a Pen Audio Bug for $24.99. Yes, theyre just what they sound like - miniature video and audio recorders.

- Wowwee has developed a line of guitars and drum sets that are only about 1 inch thick called Paper Jamz. Theyre also $24.99.

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That will play out in living rooms across the country. The changes could mean higher cable or satellite TV bills, as the networks and local stations squeeze more fees from pay-TV providers such as Comcast and DirecTV for the right to show broadcast TV channels in their lineups. The networks might even ditch free broadcast signals in the next few years. Instead, they could operate as cable channels - a move that could spell the end of free TV as Americans have known it since the 1940s.

“Good programing is expensive,” Rupert Murdoch, whose News Corp. owns Fox, told a shareholder meeting this fall. “It can no longer be supported solely by advertising revenues.”

Fox is pursuing its strategy in public, warning that its broadcasts - including college football bowl games - could go dark Friday for subscribers of Time Warner Cable, unless the pay-TV operator gives Fox higher fees. For its part, Time Warner Cable is asking customers whether it should “roll over” or “get tough” in negotiations.

The future of free TV also could be altered as the biggest pay-TV provider, Comcast Corp., prepares to take control of NBC. Comcast has not signaled plans to end NBCs free broadcasts. But Jeff Zucker, who runs NBC and its sister cable channels such as CNBC and Bravo, told investors this month that “the cable model is just superior to the broadcast model.”

The traditional broadcast model works like this: CBS, NBC, ABC and Fox distribute shows through a network of local stations. The networks own a few stations in big markets, but most are “affiliates,” owned by separate companies.

Traditionally the networks paid affiliates to broadcast their shows, though those fees have dwindled to near nothing as local stations have seen their audience shrink. What hasnt changed is where the money mainly comes from: advertising.

Cable channels make most of their money by charging pay-TV providers a monthly fee per subscriber for their programing. On average, the pay-TV providers pay about 26 cents for each channel they carry, according to research firm SNL Kagan. A channel as highly rated as ESPN can get close to $4, while some, such as MTV2, go for just a few pennies.

With both advertising and fees, ESPN has seen its revenue grow to $6.3 billion this year from $1.8 billion a decade ago, according to SNL Kagan estimates. It has been able to bid for premium events that networks had traditionally aired, such as football games. Cable channels also have been able to fund high-quality shows, such as AMCs “Mad Men,” rather than recycling movies and TV series.

That, plus a growing number of channels, has given cable a bigger share of the ad pie. In 1998, cable channels drew roughly $9.1 billion, or 24 percent of total TV ad spending, according to the Television Bureau of Advertising. By 2008, they were getting $21.6 billion, or 39 percent.

Having two revenue streams - advertising and fees from pay-TV providers - has insulated cable channels from the recession. In contrast, over-the-air stations have been forced to cut staff, and at least two broadcast groups sought bankruptcy protection this year.

Fox illustrates the trend: Its broadcast operations reported a 54 percent drop in operating income for the quarter that ended in September. Its cable channels, which include Fox News and FX, grew their operating income 41 percent.

A small chunk of the ad revenue is being recouped online, where the networks sell episodes for a few dollars each or run ads alongside shows on sites such as Hulu. Media economist Jack Myers projects online video advertising will grow into a $2 billion business by 2012, from just $350 million to $400 million this year.

But that is not significant enough to make up for the lost ad revenue on the airwaves. Advertisers spent $34 billion on broadcast commercials in 2008, down by $2.4 billion from two years earlier, according to the Television Bureau of Advertising.

So rather than wait for the Internet to become a bigger source of income, the networks and local stations are mimicking what cable channels do: Theyre charging pay-TV companies a monthly fee per subscriber to carry their programming.

Since 1994, the Federal Communications Commission has let networks and their affiliates seek payments for including their programming in the pay-TV lineup. Not everyone demanded payments at first. Instead they relied on the broader audience that cable and satellite gave them to increase what they could charge advertisers.

The big networks also were content to let their broadcast stations essentially be subsidized by higher fees for the cable channels that fell under the same corporate umbrella. A pay-TV company negotiating with the Walt Disney Co., which owns ABC, is likely paying more for the ABC Family channel than it otherwise would, with the extra assumed to help Disney cover its costs for the ABC network broadcasts.

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“This is highly symbolic,” said Tim Brooks, who had worked at NBC for 20 years and now writes books on television history.

Starting Sunday, Vivendi SA has an option to sell its 20 percent stake in NBC Universal. Majority owner General Electric Co. is expected to buy it and then sell a 51 percent stake of the entire NBC Universal unit to Comcast, which serves about a quarter of the nations subscription TV households.

Broadcast people, the folks who remember when television was ABC, CBS, NBC and little else, used to look down upon cable.

The idea of broadcast TV was implied in the name; the networks tried to reach the broadest possible audience. For cable its important to do something specific and do it well, and the audience doesnt need to be as large.

NBC Universal Chief Executive Jeff Zucker recognizes this. Cable properties such as USA, SyFy, CNBC and The Weather Channel mean more to NBC Universals bottom line than staggering NBC, fourth place in the ratings.

And those cable properties - more than the flagship “Peacock” network - were the draw for Comcast. By owning more content, Comcast further hedges its bets as mainly a distributor of shows in case viewers ditch their cable TV subscriptions and migrate to the Internet, mobile devices or a platform that has yet to emerge. The company could charge for the shows or sell ads wherever the viewers are.

In a sense, NBC would become a pioneer again, as it seeks to stay relevant amid intensifying audience fragmentation.

NBC was established as the nations first radio network in 1926. Its parent company, the Radio Corporation of America, made radios and realized the best way to get people to buy the product was to make sure there were interesting things to listen to.

“Without NBC, there wouldnt be broadcasting as we know it,” said Walter J. Podrazik, a consulting curator at the Museum of Broadcast Communications.

NBC was the leading radio network, so powerful in those days it had two networks: NBC-Red and NBC-Blue. It was forced by the Federal Communications Commission in the early 1940s to divest itself of one network. NBC-Blue eventually became ABC. In fact, all three original broadcast networks can be traced back to NBC. One of its original owners, Westinghouse Electric Co., bought CBS in 1995.

Some of NBCs radio profits were funneled into researching the new television technology. NBC began television broadcasts in 1939 by covering the opening of the New York Worlds Fair.

“He was as much a cheerleader as he was an investor,” Podrazik said, “and he was right.”

In 1947 came the first NBC program thats still around today - Sunday mornings “Meet the Press.” But 1948s “Texaco Star Theater” with Milton Berle was televisions first big hit. Many people bought their first TVs, or crowded around the few ones available, to see a comic whod mine for laughs each week by wearing a dress.

Televisions early years had NBC and CBS fighting for dominance, with CBS more often than not gaining the upper hand. NBC settled for innovation, and the work of executive Sylvester “Pat” Weaver is still apparent today. He introduced the concept of multiple ads appearing on shows, instead of programs that had single sponsors, according to the Museum of Broadcast Communications.

Weaver expanded televisions day by introducing the “Today” and “Tonight” shows, which became huge profit centers for the network.

“Tonight” was particularly influential, with Steve Allen, Jack Paar and, for more than a quarter-century, Carson. His monologues were the bedtime stories for millions, and he introduced hundreds of talented artists to the public. “Saturday Night Live” is a new generations comic touchstone.

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The precipitating events were live broadcasts of awards shows in which Bono, Cher and Nicole Richie - Justice Anton Scalia referred to the latter two as “foul-mouthed glitteratae from Hollywood” - let slip or perhaps purposely said variations of what Scalia called “the F- and S-words.”

By a 5-4 vote, the court threw out a ruling by the 2nd U.S. Circuit Court of Appeals in New York. That court had found in favor of a Fox Television-led challenge to the FCC crackdown and had returned the case to the agency for a “reasoned analysis” of its the tougher policy on indecency.

The commission appealed to the Supreme Court instead.

Scalia, writing for the court, said the FCC policy, adopted in 2004, was “neither arbitrary nor capricious.”

Acting FCC Chairman Michael Copps called the decision “a big win for Americas families.” Copps said the “decision should reassure parents that their children can still be protected from indecent material on the nations airwaves. “

Fox expressed disappointment but said it was “optimistic that we will ultimately prevail when the First Amendment issues are fully aired before the courts.”

The FCC toughened its long-standing policy after it concluded that a one-free-expletive rule did not make sense in the context of keeping the air waves free of indecency when children are likely to be watching television.

Under the new FCC rule, some words are deemed to be so offensive that they always evoke sexual or excretory images. So-called fleeting expletives were not treated as indecent before the change.

The policy essentially excludes news programming and some other broadcasts, including ABCs airing of “Saving Private Ryan” in 2004.

In the short term, the decision probably will lead the justices to reverse a similar appeals court ruling in the FCCs effort to fine CBS Corp. over Janet Jacksons wardrobe malfunction at the 2004 Super Bowl. That case has been pending at the high court since November.

The federal appeals court in Philadelphia threw out a $550,000 indecency fine against CBS over Jacksons breast-baring episode during the halftime show. The court said the incident lasted nine-sixteenths of a second and should have been regarded as “fleeting.”

The FCC said it is reviewing the ruling before deciding how to proceed on pending complaints.

In its last major broadcast indecency case, the court ruled 31 years ago that the FCC could keep curse words off the airwaves between 6 a.m. and 10 p.m.

Justice Clarence Thomas sided with the majority Tuesday, but he nevertheless noted that the previous decision and an even earlier case “were unconvincing when they were issued, and the passage of time has only increased doubt regarding their continued validity.”

When the court upheld the FCC regulation in 1978, broadcast TV was the only television available to most Americans.

Today, the Internet, cable and satellite television are in millions of homes, yet the FCCs authority extends only to broadcast television and radio, as Thomas noted.

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For years, the government and industry has said Feb. 17 would be the day when analog TV signals go away, and viewers who lack cable or satellite would have to tune in to digital signals. But when funding ran out for coupons to subsidize TV converter boxes, Congress became concerned that viewers wouldnt be ready, and hurriedly passed a bill to delay the deadline to June 12.

At the same time, Congress left the door open to stations to keep the Feb. 17 date. When a third of U.S. full-power stations said theyd like to do so, the Federal Communications Commission put its foot down, placing extra conditions on some of them. Only late Friday did it become clear, or nearly so, which stations would shut down analog four days later, and which would wait for a few more months.

A patchwork of 641 stations across the country, mainly in thinly populated areas, are still turning off their analog broadcasts this week or have already done so. The most populous markets where many or all major-network stations are cutting analog include San Diego and Santa Barbara, Calif.; Providence, R.I.; La Crosse and Madison, Wis.; Rockford, Ill.; Sioux City, Iowa; Waco, Texas; Macon, Ga.; Scranton, Pa.; and Burlington, Vt.

“I think this whole delay is ridiculous,” said Robert Prather, president of Gray Television Inc., an Atlanta-based company that owns 36 stations. “Its just going to cause confusion among consumers. Theres no reason in the world for it that I can understand.”

No one really knows how many viewers will be affected this week. Nielsen Co. said 5.8 million U.S. households, or 5.1 percent of all homes, were not ready for the analog shutdown, but its unclear how many of them are in early-shutdown areas. Also, the National Association of Broadcasters has taken issue with Nielsens numbers, saying they exaggerate the problem by counting households that have digital converters but havent connected them.

“The ones who arent going to be ready arent going to be ready in June any more than they are now,” Prather said.

Gray applied to keep the Feb. 17 date for most of its stations, but the push-back from the FCC left it with 14 that could. As a final twist, Gray over the weekend decided to turn those off on the 16th, some in the afternoon and the rest at midnight, because its lawyers interpreted the rules as saying analog should be “off the air by the 17th” rather “go off the air on the 17th.”

Other stations differ in their interpretation, and plan to cut analog sometime on Tuesday.

Meanwhile, newspaper inserts from RadioShack Corp. proclaimed across the country this weekend that Feb. 17 is the day when viewers “must take action to continue receiving TV broadcasts,” even though two-thirds of TV stations, and nearly all the ones in major cities, will remain on the air in analog for a few more months. A spokeswoman for the company was unavailable on Monday, a holiday.

Station owners contacted by The Associated Press are confident the large majority of viewers are prepared for the change, even if the message has been muddled on the timing.

KSFY, an ABC affiliate in Sioux Falls, S.D., also planned to shut down its analog transmitter at midnight Monday.

Alan Miles, a former analyst at Barclays Capital who studied the analog shutdown, said the whole process has been “botched politically,” starting with Congress order that the entire country had to kill analog at once. Nearly every other country is shutting down or planning to shut down analog broadcasts area by area. Only small, cable-dominated countries like the Netherlands have eliminated analog TV all in one go, like the U.S. planned to do on Tuesday.

Then, Miles said, the coupon program was underfunded, leading to the delay, which has turned into a disorganized partial shutdown.

“There will be problems with the transition, inevitably,” Miles said. “So I almost feel like its better to just get it over with rather than postpone the pain.”

One benefit of having some stations shut down analog early is that the FCCs DTV call center (1-888-CALL-FCC) will now have a better chance of handling calls from viewers wondering how to get their TV signals back. Together with industry partners has nearly 4,300 operators ready to help.

Also, the delay provides a chance for the converter box coupon program to catch up. The stimulus bill that President Barack Obama is expected to sign on Tuesday contains $650 million in additional funding. Once thats available to the National Telecommunications and Information Administration, it can clear the 4 million coupon backlog in a few weeks.

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The delay sent TV stations scrambling to figure out when to shut down analog Most had planned for years to do it on Feb. 17, and many had scheduled engineering work.

The Federal Communications Commission said Tuesday that 491 of the 1,796 full-power TV stations in the country had registered their intention to keep the Feb. 17 date. The FCC has reserved the right to deny individual stations an early shutdown.

Markets losing most or all of their major analog network broadcasts include Oklahoma City; Tulsa, Okla.; Charleston and Greenville, S.C.; Dayton, Ohio; Springfield, Ill.; Burlington, Vt.; Bakersfield, Calif.; Binghamton, N.Y.; Casper, Wyo.; Lincoln, Neb.; Lubbock, Texas; Mobile, Ala.; and Sioux Falls, S.D.

Most of the stations shutting down early are in small- to medium-sized cities. The major broadcast networks have committed to the June 12 date for the 85 stations they own, mainly in large cities.

The transition is being mandated because digital signals are more efficient than analog ones. Ending analog broadcasts will free up valuable space in the nations airwaves for commercial wireless services and emergency-response networks.

The FCC said 190 stations have already turned off their analog signals. All stations in Hawaii made the transition in January so that analog towers could come down before an endangered birds nesting season.

TVs connected to cable or satellite services are not affected by the analog shutdown. According to research firm MRI, 17.7 percent of Americans live in households with only over-the-air TV.

Most of them are ready for the analog shutdown, according to the National Association of Broadcasters and analysts at the Nielsen Co. Nielsen said last week that more than 5.8 million U.S. households, or 5.1 percent of all homes, are not ready.

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Fox has broadcast the games since 2007, but a spokesman for the network said it was not going to match ESPNs offer. Fox is owned by News Corp., and ABC is owned by Walt Disney Co.

“Even with todays vast economic uncertainties, Fox Sports made a very competitive bid to keep broadcasting BCS games free to every home in America, one that included a substantial rights fee increase, and certainly as much as any over-the-air network could responsibly risk,” Fox spokesman Lou DErmilio e-mailed.

A vocal contingent of college football fans - including President-elect Barack Obama - has clamored for a playoff to determine its champion. Theyll all probably have to wait until January 2014, when this deal would end.

ESPN broadcast partner ABC already has the rights to the Rose Bowl and before the Fox deal, held the rights ever since college footballs major conferences set it up.

After a series of awkward matchups some - but by no means all - fans have grown frustrated by the BCS.

Two disputed past matchups have involved teams coming off big losses (Nebraska in 2001 and Oklahoma in 2003; neither won the title) and a perfect Auburn team was snubbed in 2004.

The past two years, Ohio State has lost lopsided affairs that only provided grist for the mills of playoff proponents.

About the only time theres been no uproar has been when two and only two teams managed to finish the regular season unbeaten.

“We should be creating a playoff system,” Obama said during a recent interview on CBS “60 Minutes,” taking to the airwaves for the second time this month to push his plan for an eight-team college football tournament.

“I dont know any serious fan of college football who has disagreed with me on this,” Obama said. “So, Im going to throw my weight around a little bit. I think its the right thing to do.”

ESPN and the BCS are keeping mum on details of their negotiations, but whatever Foxs offer was, it wasnt enough for the BCS.

“Unfortunately, the University presidents and BCS commissioners were not satisfied and theyve decided to take their jewel events to pay television,” DErmilio said in an e-mail statement. “We wish everyone well.”

ESPN had a retort for Fox: “We wish to remind everyone that ESPN is distributed on expanded basic, a product enjoyed by 98 million homes that offers the best entertainment buy in America and that already carries many championship-caliber sports events,” spokesman Mike Soltys e-mailed.

Source: ncber