The term "license fee" has two meanings when applied to television. The first indicates a means of supporting an entire television industry. The second indicates support for the production of specific programs.

When applied in the first sense a license fee is a form of tax used by many countries to support indigenous broadcasting industries. The fee is levied on the television receiver set and paid at regular intervals.

A receiving set license fee for the support of broadcasting was considered and rejected very early in American radio's infancy. At this time the new medium was considered a public resource and the idea of support from advertisers was thought inappropriate. The license fee was one of several funding proposals, including municipal or state funding and listener contributions, offered by various sources in the 1920s. The license fee idea took two distinct forms. The first was modeled on the British scheme of taxing receivers in viewer's home. At that time, the British levy was ten shillings per receiving set. The second approach, proposed by RCA's David Sarnoff, called for a tax (2%) on the sale price of receivers. The success of toll broadcasting (broadcasting paid for by advertisers) near the mid-point of that decade squelched further discussion on the issue.

In the early days of American television, the idea of a receiving set license fee was briefly raised again by those who pointed to the failures and inadequacies of radio's commercial nature. But because most early television stations were owned by broadcasters with long experience in AM radio, it was almost inevitable that advertising would provide the primary economic support for the new medium.

This was not the case in Great Britain. The license fee was in place from the earliest days of its broadcasting service, having been mandated by the 1904 Wireless Telegraphy Act (and reaffirmed for radio and television in the Wireless Telegraphy Act of 1949). The level of the fee is set by Parliament through its Treasury Department. The BBC is allowed to make its recommendation and, once set, the fee is collected by the Post Office which is also responsible for identifying and tracking down those who attempt to avoid paying the fee (approximately 6% of the audience). The resulting income supports the broadcasting authority (the BBC) and its programming. As a public corporation supported by these fees (none of the income can be distributed elsewhere), the BBC is theoretically insulated from day-to-day influence by Parliament.

The 10 shillings fee remained in force until the end of the World War II. 1946 saw a doubling of the radio fee, and when black and white television was first introduced, its fee was 2 pounds (double that of radio). The license fee for radio was dropped in 1971 and today, only the color television fee remains, rising periodically, for example from 46 pounds in 1981 to 85 pounds in 1995.

Although the BBC has occasionally toyed with the idea of running commercials to increase revenues in difficult economic periods, the license fee is well entrenched there. Said a BBC spokesperson when testifying on the future of British broadcasting in 1977, "The license fee system involves each member of the viewing public...in the feeling that he is entitled to a direct say in what he gets for his money. At the same time, the license fee system puts the broadcasters in a more direct relationship with the public than any other system of financing would. It reinforces a frame of mind in the BBC which impels us constantly to ask ourselves the question: 'What ought we to be doing to serve the public better?'"

The value of such a system for supporting a nation's broadcasting has three aspects. First, it assigns the costs for broadcasting directly to its consumers. Second, this tends to create a mutual and reciprocal sense of responsibility between the broadcasters and the audience members which, third, frees the broadcasters from control and influence by governments (as might be the case where direct government support exists) or advertisers (as might be the case in commercial systems). Against these benefits is the problem of complacency. An increasing number of nations with license fees also allow limited commercial broadcasting, in part to overcome this tendency.

Many countries other than Great Britain, including Israel, Malta, France, the Netherlands and Jordan, have some form of license fees. Some base their fee on color television only (like Great Britain) and some on color television and radio (for example, Denmark). Two thirds of the countries in Europe, one half in Africa and Asia and 10% of those in the Americas and Caribbean rely, at least in part, on a license fee to support their television systems. Common among them is a philosophy of broadcasting that sees it as a "public good."

The second definition of license fee is applied most often in American television, though its use is growing throughout television production communities elsewhere. It refers to funding that supports independent television production for broadcast networks or other television distributors such as cable companies. In this instance the license fee is the amount paid by the distributor to support production of commissioned programs and series. In exchange for the license fee the distributor receives rights to a set number of broadcasts of commissioned programs. Following those broadcasts the rights to the program revert to the producer. This form of production financing is central to the economic system of commercial television because the distributor's license fee rarely funds the full cost of program production. Producers or studios still must often finance part of their production costs and hope to recoup that amount when a program returns to their control and can be sold into syndication to other distribution venues. Nevertheless, the initial funds, in the form of a license fee, generally enable production to begin.

- Kimberly Massey