I found this question pretty good and thus wanted to share with you guys. It's a nested parallelism question. Here's the OE:

(A) The first two parallel elements are prepositional phrases: discouraged by X and by Y. To maintain the parallel structure, the third element (competition) should also be a prepositional phrase: discouraged by X and by Y, as well as by Z.

In addition, the nested parallelism is ambiguous. Is the competition from one source—new services that stream two things (content and traditional movies)? Or is the competition from two sources—traditional movies and new services that stream content over the internet?

(B) Choice (B) changes the first two elements in the list; they now both begin with the word that (that viewership is shrinking and that many viewers fast-forward through commercials). To maintain the parallel structure, the third element (competition) should also begin with that.

(C) CORRECT. The split between increasingly are and are increasingly is a red herring: The adverb can be placed before or after the verb. This sentence adds the word by before the competition, fixing the broken parallelism.

(D) This sentence fixes the initial broken parallelism: now, discouraged by introduces the list and the preposition is (correctly) not repeated in each of the later elements in the list. However, the sentence now has just one list with four elements (discouraged by W, X, Y, and Z). As written, this sentence indicates that the ad-purchasers are discouraged by … traditional movies, as though the ad-purchasers dislike traditional movies themselves. In fact, they are discouraged by the competition from traditional movies.

(E) The first two elements in the list are now full sentences (viewership is shrinking, viewers are fast-forwarding through commercials); however, the last element (the competition from traditional movies as well as new services that stream content over the internet) is not a sentence; it lacks a verb, breaking the parallelism.

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Good catch.

While a second "by" after "as well as" would perhaps make (B) easier to read, (B) is basically parallel as written.

Meanwhile, in (C), the placement of "increasingly" is suboptimal. It makes more sense to place "increasingly" directly before "discouraged," as "increasingly" is in (B).

The point to be made is not that the purchasers "increasingly are" something. The point to be made is that the purchasers are "increasingly discouraged."

At the same time, in (B), "by the fact that x and that y" does not make complete sense. We have two facts, but the singular "fact" is used. Ideally, either "fact" would be repeated before the second "that" or the plural "facts" would be used.