What's going on? The Internet was supposed to make these companies poor. Instead, the Internet is making them rich.

"We heard stories about how cable was doomed by the Internet as early as 2003," says Craig Moffett, an analyst with Sanford C. Bernstein. "It has finally dawned on investors that, not only was that never a realistic concern, but also, the Internet has turned out to be a boon for both distributors and content companies."

To understand why the Internet hasn't destroyed cable, ask yourself: Where do you get your Internet? It's probably from the same people selling you TV. Since 2005, total cable industry revenue is up 50% -- and two-thirds of that increase came from selling something that wasn't television. For the most part, it was Internet. Cable companies like Comcast and Time Warner Cable sell broadband at ridiculously high margins. When you compare the total cost and profit of selling TV versus selling Internet, it's clear to Moffett that pay TV "has represented less than half of [cable's] business for more than a year."









While cable has made Internet a second business, content companies have treated the Internet as a second window. Even as they demand more money from cable operators for the right to carry their channels to households, media companies have also made a killing selling their shows to companies like Amazon, Netflix, Hulu, and Apple. One paradox of online entertainment is that more Reach isn't necessarily more Revenue. Today we have access to more music and news that ever, but since we're only paying for access, the difference between listening to 10 songs and 10,000 songs (or reading 10 articles versus 10,000 articles) is often zero. But the TV industry is getting more reach and more revenue, together.

This would be a good time for me to say that just because traditional media has fended off disruptive innovation in January 2013 doesn't mean there won't be a different story to write in January 2014. Programming costs, especially for live sports, are just insane. Attention is slowly but surely flitting away from prime-time TV and some large cable networks. Cable's high-margin Internet business could get it in trouble with regulators if somebody makes the case that private companies shouldn't have that much pricing power over a basic utility like broadband.

There are many ways that government, audiences, and technology cut down the mega-goliath that is the modern TV business. But for now, Les Moonves, CEO of CBS and a mega-goliath in his own right, is correct: Everything that was supposed to be bad for the TV business has turned out to be good for the TV business.





