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Why Fox Is Wrong on Time Warner, Google Should Close on Twitch

NEW YORK (TheStreet) -- The media business and the Internet industry are built on contradictory assumptions.

Media lives in a land of scarcity. There are only a limited number of cable channels, and there is only room for a few competitors. That is the assumption built into 21st Century Fox's  (FOXA - Get Report) bid for Time Warner (TWX - Get Report) -- putting HBO and CNN under the Fox umbrella would reduce competition and drive profits higher.

The Internet lives in a land of abundance. On the Internet you can change channels with the click of a mouse. So the idea that Twitch, which hosts live streaming shows, is really worth $1 billion to Google (GOOGL) begins, in the clear light of day, to sound like madness.

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But both assumptions may be wrong. Media are becoming more abundant, and the Internet is growing into scarcity. Why? Because clouds cost more money than studios. 

Fox first. A bunch of smart New York financial houses including Morgan Stanley (MS), Barclays (BCS), and Wells Fargo (WFC) are pounding the table for the Fox-Time Warner deal, based on a theme of "industry consolidation." The assumption is that, after HBO and CNN come under Fox control, there will be fewer companies competing for a limited number of cable slots.

But audience is no longer based on cable slots. The best evidence for this is Twitch itself. Twitch told Re/Code recently it now has 50 million unique viewers each month. 

What they are mainly watching is people like former Limp Bizkit front man Fred Durst and San Francisco Giants outfielder Hunter Pence play and comment on video games. If watching talking heads sounds crazy to you, then perhaps you haven't noticed how all the so-called news channels, including CNN, have evolved in the last decade to essentially offer the same thing, only they are discussing news stories in fancy studios.

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