The Average american family spends 34 hours a week [1] watching TV, break that in half for shits and giggles and you're now at 17 hours per week or roughly 68 hours a month. At your $3.5 per hour of TV rate the average household is now paying $238 bucks a month ala-carte.
Want to charge less per episode? Breaking Bad's last season cost $3.5M per episode to produce just to break even on production costs they'd need to charge just over a buck per episode (3M paid) and you'd still be charging that household $68 bucks a month. That still real money right there.
Unlike OP, Breaking Bad for me (on Amazon Instant) is $1.99 or $2.99 depending upon if I want SD or HD, and the SD streams are actually quite good quality-wise, certainly good enough for the masses who like to stretch letterboxed content so their screen isn't "wasted".
But that aside, The 34 hours a week includes a lot of advertisement watching too, so I'm sure there are hybrid models that could be explored where you get a good discount on streaming for choosing to watch some ads inserted into the middle of the show, say $1.99 for the SD show without commercials or heavy discount (maybe even free) if you choose the ads, and then the higher end $2.99 for people who really insist on "HD".
Also, I'm sure not all of that 34 hours per week the average person watches is Breaking Bad quality, presumably a lot of it is filler that would be valued far less by the watcher and thus have to be priced far less, which is one of the real benefits of ala carte. When I was a cable subscriber I felt like I was subsidizing a lot of really shitty networks churning out really shitty programs. I'm perfectly happy to pay the same amount per month (or even a bit more!) but with all my money going to programs of a high enough quality that I choose to pay to watch them specifically.
Want to charge less per episode? Breaking Bad's last season cost $3.5M per episode to produce just to break even on production costs they'd need to charge just over a buck per episode (3M paid) and you'd still be charging that household $68 bucks a month. That still real money right there.
[1] http://www.nydailynews.com/entertainment/tv-movies/americans...
[2] http://variety.com/2013/tv/news/mipcom-katzenberg-offered-to...