(FORTUNE Magazine) – ABC's Fantasy Island remake flopped two years ago, but the network's co-chairman Stu Bloomberg seems to be living in the imaginary paradise. Ask him about the pending writers and actors strike, and he says, "I feel that we're in a good position."

Even Mr. Roarke couldn't conjure such a deluded fantasy: Barring last-minute settlements, the Writers Guild of America and the Screen Actors Guild will strike this summer. The work stoppages will have a profound impact on the financial health of network television.

The last strike, in 1988, changed the television business forever. It fueled the growth of Fox, which weathered the strike with first-generation reality shows like America's Most Wanted. ABC, NBC, and CBS lost 10% in ratings during the five-month strike. "We never got that share back," says Peter Roth, president of Warner Bros. Television Studios.

In Hollywood, speculation about the strike is topic A (or topic B, after Survivor 2). Television unions and executives are far apart on key issues--DVD, video, Internet, and overseas syndication sales--that this strike could last even longer than the one in 1988. (Movie writers and actors have more demands; their beefs would take another article to document.) The business has changed so enormously since 1988 that Wall Street is unsure of how to assess the impact of a strike this time around; analysts haven't even factored it into their economic models.

The first signs of trouble will appear in May when the networks try to sell their fall schedules to advertisers. Shortly after these presentations, advertisers commit up to 75% of their TV budgets. Last year advertising rates jumped 16%. Not so this year--the market is a lot softer. And advertisers will be reluctant to allow their marketing campaigns to be dependent on programs that may never air. Cable will look like a safer place to put ad dollars. Programming executives expect network ad sales to fall significantly this year.

If the strike lasts through the fall, the situation becomes dire. When NBC secures a year's worth of Friends from Warner Bros. (usually 22 episodes), it buys just two to three airings. Do the math: The network will exhaust last year's episodes come mid-fall. If a network owns and produces a show, as NBC does Will & Grace, it can air the program as much as it wants, but it is loath to do so because repeated airings erode the syndication value of a series.

Network executives insist that none of this is a big deal. An NBC insider says a drop in programming costs will more than offset the lost ad revenue. And all of the networks say they can air cheaper news magazines and reality shows, a genre enjoying enormous popularity. A fail-safe strategy, right? Not quite. First, reality shows aren't so cheap anymore. After announcing plans for Survivor 3 and Survivor 4, CBS President Les Moonves told FORTUNE that Survivor 2 was as expensive to make as an hourlong drama (a typical drama costs at least $1.5 million per hour). Second--and most important--by force-feeding reality shows to the public, the networks risk overexposing the one genre that's working well for them. "Reality television has been a disaster for my union," says actor Brad Whitford, co-star of The West Wing, "but the strike will hasten its demise."