Again, unless you are privy to Valve's books, you cannot ascertain with any degree of accuracy whether Steam is a cash cow. And even if Microsoft wants it, it would certainly not be because of Valve's profitability; it would be just to eliminate a competitor, even if it meant losing money (It wasn't long ago MS was throwing money at HD-DVD knowing pretty well it wasn't a viable competitor to Blu-Ray in the overall market place, as in outside gaming consoles...) ; and make no mistake, should Microsoft buy Valve, all Valve stuff will disappear, and all Steam customers will turn into GFWL customers within a few months. It'll take a small binary to remove Steam and install GFWL in your computer in a couple minutes.
http://www.forbes.com/forbes/2011/0228/technology-gabe-newell-videogames-valve-online-mayhem.html.
Microsoft
wants Steam, because it's easier to eat your competition than to let them go out of business. That's why AT&T ate T-Mobile in the US, so it could take its resources before they were run into the ground. The point is, if Microsoft took Steam, it'd still be there. Your Steam licenses would simply be converted into GFWL licenses, but you don't lose your games. That would be horrendous amounts of bad press for Microsoft.
I guess you are unaware of the practice of companies "giving stuff away" or offering heavy discounts on certain items to lure you into buying other stuff... and I put "giving stuff away" in quotation marks because they really don't "give it away". Whatever you download for free, or buy at substantial savings, it goes onto their balance sheet as a business expense and off their taxes. So don't think they are these "good guys" giving you these "crazy deals" ... they are not.. they are a business. Once lawyers are involved (as in drafting the EULA), there's nothing morally good about it.
Activision's never given me anything for free. Activision never added security measures on my WoW account to prevent someone from hacking it. Activision never put quality before quantity. Valve has done all of those things, which is why I consider it to be the Google of video game developers. It may profit in the long run, but it's a mutually beneficial system where I get free stuff and they may profit. In the worlds of Activison, EA, Microsoft, and Sony, they're not happy unless you're just giving them money. That's why there's a Steam fan following, but Activision is the scourge of video game developers now that EA has improved their image a bit.
Funny you mentioned Blockbuster.. when Blockbuster started, there was a lot of concern among movie theater owners that Blockbuster was going to hurt their business. Guess the theater owners had the last laugh. Anyway...
Blockbuster never had movies before the theaters did. Neither does Netflix. But Netflix has movies when Blockbuster does. But you're right, I guess all of those reports of how Netflix is killing Blockbuster are wrong, and Blockbuster isn't closing down stores because it's not earning money - it's just trying to trick people into thinking it's doing poorly.
Sure everyone is going digital... but again, everyone is going digital, so competition increases exponentially. There was a time not long ago when people thought AOL was going to dominate ISPs forever because of the huge customer base (nothing came even close), or that Internet Explorer was going to control the internet browsing experience... well, that didn't happen, did it? So, don't be so sure that Valve cannot go away when the next best thing hits the net or someone like MS buys it and rebrands it.
It can go away, just as AOL has done. But you never stop owning the games you bought from it. Nor does that mean it will never be used by anyone the moment something comes along that is more popular. Internet Explorer doesn't control over 50% of the browser market share. It controls the majority chunk, but more people don't use Internet explorer than do. That doesn't stop them from releasing Internet Explorer 9, because competition is the best environment for innovation. AOL didn't adapt to the times, and because of that, it died. Steam itself is adaptation to the times, because it's taking over an emerging market that's slowly crushing a different market.