Streaming services are the new magic money tree for investors – but for how long?
Streaming services are in full bloom and laden with profits, but beware – winter is coming, warns Matthew Lynn


Streaming television and music has started to turn into a seriously profitable industry. Recently, Disney reported a 7% rise in overall profits. It made decent returns from its films and theme parks, but it was the figures from its Disney-Plus service, with hits including Rivals and Andor, that stood out, with the unit reporting that it had signed up an extra 1.4 million subscribers. Its rival Netflix has been doing even better. Earlier this year, it punched through 300 million paid subscribers globally, a 15% year-on-year rise, and, even better, it is getting them all to pay more as well.
Netflix had successfully clamped down on “password sharing” – allowing lots of people to use the same account – and it has pushed up prices, with the standard plan in the UK now costing £12.99 a month, a £2 increase year-on-year. In the US, the standard advertising-free plan is now $17.99, and there have been similar price increases in all its major markets.
Over in the music industry, Spotify is doing just as well. In the UK, it increased the cost of its standard plan last May from £10.99 per month to £11.99, with similar price rises across the board for shared plans. In the US, it added a dollar a month to its plans. It is now reported to be planning a new premium tier, with better sounds and exclusive content and access to tickets, for another $6 a month. One point is already clear. Its 263 million global subscribers will accept price rises without cancelling.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
It seems as if a handful of streaming giants have discovered a magic money tree. They lock in hundreds of millions of subscribers, getting them used to daily streams of high-quality television and music. And then, once they are hooked on it, they keep raising their prices. Given that costs only rise very marginally as the price rises, the extra cash is pure profit. It drops straight down to the bottom line, generating huge sums for the owners.
We can see the impact of that on share prices. Spotify’s are up by 114% over the last year as investors work out that it is sitting on a digital gold mine. Netflix’s are up by 25% over the last 12 months, even after starting from a high level and getting caught up in the crash in tech stocks. Disney’s shares are up by 4% over the same period, although, of course, it is a far more diverse company, with streaming being only one part of its portfolio. Investors can see the amount of money streamers are making and want a slice of it.
Can streaming services remain profitable?
Here’s the snag, however. This can’t last forever. There are two big problems.
First, at some point, the streaming services are going to hit resistance from customers. Streaming prices were subsidised for almost a decade by the venture-capital industry and the stock market, with investors throwing billions of dollars at companies that were mainly interested in building market share. That allowed them to offer a fantastic product at a very low price.
Most subscriptions were so low that people barely noticed the monthly fees coming out of their bank accounts.
But now they are starting to add up. With a couple of premium television subscriptions and a music streaming service, people can easily be spending £50 or £60 a month on digital content.
At a time when living standards have been squeezed, that can be a lot, and it is an easy cost to cut when money is tight. So far, the streaming giants have been very good at raising prices without losing customers. At a certain point, however, that will change, and there could be a huge wave of cancellations.
Next, the talent will demand more money. If the streamers are making huge profits, then the music artists will soon demand a larger pay-out, and the film stars and directors will want a bigger cut. After all, the streamers need the content, and in the end, they will have no choice but to pay up.
A little like football clubs, they will find that, although there is lots of cash swilling through the industry, much of it has to be spent on a limited pool of exceptional talent. That eats into profits. Right now, streaming is a license to print money. But it won’t for long remain anything like as profitable as it looks right now.
This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
Matthew Lynn is a columnist for Bloomberg, and writes weekly commentary syndicated in papers such as the Daily Telegraph, Die Welt, the Sydney Morning Herald, the South China Morning Post and the Miami Herald. He is also an associate editor of Spectator Business, and a regular contributor to The Spectator. Before that, he worked for the business section of the Sunday Times for ten years.
He has written books on finance and financial topics, including Bust: Greece, The Euro and The Sovereign Debt Crisis and The Long Depression: The Slump of 2008 to 2031. Matthew is also the author of the Death Force series of military thrillers and the founder of Lume Books, an independent publisher.
-
What is the 25x retirement rule and does it work?
The 25x retirement rule has been around for decades but many experts question if it is a suitable strategy
-
When is the self-assessment tax return deadline?
If you are self-employed, rent out a property or earn income from savings or investments, you may need to complete a self-assessment tax return. We run through the deadlines you need to know about
-
Are wealthy whisky enthusiasts leaving Britain?
Collectables Wealthy whisky enthusiasts are heading to tax-friendly countries such as Dubai, where there is more disposable income to spend on collectable luxuries like rare whisky.
-
'The rise and fall of Kodak is a lesson for the tech giants'
Opinion The long decline of Kodak – a once-dominant company – shows why no business is safe from disruption, says Matthew Lynn
-
8 of the best properties for sale with kitchen gardens
The best properties for sale with kitchen gardens – from a 17th-century timber-framed hall house in Norfolk, to an Arts & Crafts house in West Sussex designed by Charles Voysey with a garden by Gertrude Jekyll
-
Why investors can no longer trust traditional statistical indicators
Opinion The statistical indicators and data investors have relied on for decades are no longer fit for purpose. It's time to move on, says Helen Thomas
-
Investors rediscover the virtue of value investing over growth
Growth investing, betting on rapidly expanding companies, has proved successful since 2008. But now the other main investment style seems to be coming back into fashion.
-
8 of the best properties for sale with shooting estates
The best properties for sale with shooting estates – from an estate in a designated Dark Sky area in Ayrshire, Scotland, to a hunting estate in Tuscany with a wild boar, mouflon, deer and hare shoot
-
The most likely outcome of the AI boom is a big fall
Opinion Like the dotcom boom of the late 1990s, AI is not paying off – despite huge investments being made in the hope of creating AI-based wealth
-
What we can learn from Britain’s "Dashing Dozen" stocks
Stocks that consistently outperform the market are clearly doing something right. What can we learn from the UK's top performers and which ones are still buys?