Very interesting thesis. The more the ratings and demand dropped, the more news agencies have to sensationalize to compete with other options. However, in terms of the polarization of politics, I'd have to say that stems more from the concept of echo chambers. The polarization doesn't stem from the competition with cable, etc. A lot of it comes from individuals only consuming information and opinions of one side, which in turn pushes each group farther towards those positions.
edit: Another interesting comparison is how a news site like Hacker News (or even Reddit) reaches a decline in the content being provided. Reading the commenting/posting guidelines offers an interesting insight into how HN tries to prevent that decline from happening.