My theory (and that's all it is) is since satellite charged for locals when they originated, the broadcasts thought "they shouldn't be making money off us, we deserve a piece of that".
And let's not forget, satellite subscriptions started taking off when they started offering LiL. Despite what many people on here seem to believe, people want their local programming.
Oh, and I almost forgot... using your argument, ESPN should cost $0 to the cable/satellite providers. They're not giving it away for free, but after all, without the cable/satellite providers, 0 people could watch ESPN. Without the cable/satellite providers, hundreds of thousands of people would still watch local broadcasters.
Yes! Locals are a requirement for us. Without LiL, we never would have gone to satellite.