For investors, streaming services are the new "magic money tree," but for how long?

Although streaming services are booming and making a ton of money, James Mackreides cautions that winter is on the horizon

Music and TV streaming has begun to grow into a very lucrative business. Disney recently revealed that its overall profits had increased by 7%. It generated respectable profits from its theme parks and movies, but its Disney-Plus service, which featured popular shows like Andor and Rivals, was the one that really stood out. According to the unit, it had added 11.4 million new members. Netflix, its rival, has been performing even better. It reached 300 million paid subscribers worldwide earlier this year, a 15% increase from the previous year. Better yet, it is getting all of them to pay more.

The standard plan in the UK now costs 12.99 per month, a 2 increase year over year, after Netflix successfully clamped down on "password sharing," which allowed many people to use the same account. The standard advertising-free plan in the United States is currently £17.999, and all of its major markets have seen comparable price increases.

Spotify is doing equally well in the music sector. Last May, the UK raised the price of its basic plan from 10 to 11 points per month. All shared plans also saw price increases of the same magnitude. It increased its plans by £1 per month in the US. For an additional £6 per month, it is reportedly planning to launch a new premium tier with improved audio, access to tickets, and exclusive content. One thing is obvious already. Its 263 million subscribers worldwide will not cancel in response to price increases.

It appears that a few streaming behemoths have found a magical money tree. They secure hundreds of millions of subscribers and acclimate them to daily streams of top-notch music and television. After they become addicted to it, they continue to raise their prices. The additional money is pure profit because costs only slightly increase as prices do. It immediately affects the bottom line, bringing in enormous sums of money for the owners.

The effect of that on share prices is evident. Over the past year, Spotify has increased by 114% as investors realize it is sitting on a digital gold mine. Despite starting at a high level and getting caught up in the tech stock crash, Netflix has increased by 25% in the past 12 months. Disney is, of course, a much more diversified company, with streaming being just one aspect of its portfolio, but its shares have increased by 4% over the same time period. When they see how much money streamers are making, investors want a piece of the action.

Are streaming services going to continue to turn a profit?

But this is where the problem lies. It can't go on forever. Two major issues exist.

First, consumers will eventually find the streaming services difficult to use. For nearly a decade, the stock market and venture capital industry subsidized streaming prices, giving billions of dollars to businesses whose primary goal was to increase their market share. They were able to provide an excellent product at a very low cost as a result.

Because most subscriptions were so inexpensive, most people were hardly aware that their bank accounts were being charged monthly fees.

They are now beginning to add up, though. People could easily spend £50 to £60 per month on digital content if they have a music streaming service and a few premium television subscriptions.

That can add up, especially during a period when living standards have been squeezed, and it is a simple expense to reduce when funds are limited. The streaming behemoths have done a great job upping their prices thus far without losing users. However, that will change eventually, and there may be a significant surge in cancellations.

More money will then be demanded by the talent. Film stars and directors will want a larger cut, and musicians will soon demand a larger payout if the streamers are making enormous profits. Ultimately, the streamers will have no option but to pay since they require the content.

They will discover that, similar to football teams, a large portion of the industry's wealth must be allocated to a small number of outstanding players. That reduces earnings. Currently, streaming is a way to print money. However, it won't continue to be nearly as profitable as it appears at the moment.