Broadcasters finally see profits on streaming, but obstacles remain

Streaming has gone from causing billions of dollars of losses for major entertainment companies to providing profits. 

For example, Disney’s (NYSE: DIS) streaming business posted a profit of $321 million in the quarter ended Sept. 28, reversing a loss of $387 million from a year earlier. 

But it’s questionable how much earnings Disney and other players in the industry can extract from streaming going forward. 

The improvement of streaming earnings for these broadcasters stems from price increases, gains in customer headcounts, ad revenue growth, lower marketing costs and a crackdown on password sharing.

Disney’s streaming offerings include Disney+, ESPN+ and Hulu. Other profitable streamers are Netflix (NASDAQ: NFLX), Comcast’s (NASDAQ: CMCSA) Peacock, Paramount Global’s (NASDAQ: PARA) Paramount+, and Warner Bros. Discovery’s Max (NASDAQ: WBD). They too suffered substantial losses before turning it around.

Golden days of yesteryear

But the profits are unlikely to reach the levels of cable’s hay day, when networks could afford to charge astronomical prices. That was because cable customers must buy their channels in a bundle, whereas cord cutters can pay for streaming services a la carte.

Streaming is a very competitive space. “The streaming companies that have not scaled are facing a real reckoning,” esteemed media analyst Michael Nathanson of MoffettNathanson said in an interview with Yale Insights, a Yale School of Management web platform.  

“How do they stay viable? Do they cut back on investment spending? Do they raise prices? Do they merge? Do they exit the business?”

There’s no room for many players in streaming, he said. “The average number of services per household has been stuck at four for a while, Nathanson noted. 

“One of those four is Netflix, the second is Amazon (NASDAQ: AMZN)—it comes with Prime—and third is some combination of Disney’s offerings. Fourth place is up for grabs. That’s what all the rest are fighting over.”

For now, there are plenty of smaller players in the mix. About 25 such low-priced specialty streaming services attracted a significant number of subscribers in the past couple years, according to research firm Antenna, as cited by The New York Times. That includes AMC+ and BET+. Hallmark+ has gotten into the act too.

Consumers are beneficiaries

All those competitors make life difficult for each other. “We’ve always argued the streaming model is great for consumers,” Nathanson said. 

“But it’s a terrible business model [for streaming companies] because people binge the shows they’re interested in, then churn off the product.” For streaming services, losing 25% of their customers is a good number, he said.  

To avoid that churn, streaming is “going to have to look a lot like cable bundles,” Nathanson said. “That’s the great irony.” ESPN, Fox (NASDAQ: FOX) and Warner Bros. have been trying to form a joint streaming service. But it has been delayed by an antitrust lawsuit. 

In any case, “companies had it pretty darn good with cable, so it’s going to be hard to get back to those economics again,” Nathanson said. That’s bad news for Disney and its competitors.