Streaming services like Disney+ aren't likely to make money 'anytime soon,' analyst says

Attendees visit the Disney+ streaming service booth at the D23 Expo on August 23, 2019 at the Anaheim Convention Center in Anaheim, California.
ROBYN BECK | AFP | Getty Images

The streaming wars got underway last month with the launch of Disney+, the media giant's subscription service priced at $6.99 a month, a direct competitor to Netflix. Meanwhile, AT&T's HBO Max and Comcast's Peacock are set to follow in the coming months.

But one analyst has warned that these services are unlikely to make money in the next five years, because the amount they will take in subscription fees won't exceed the sums needed to make new content.

According to Brian Wieser, GroupM's global president of business intelligence, streaming services will spend an extra $4 billion each a year on content, making a total of $20 billion by 2024, matching the incremental $20 billion in subscription fees GroupM estimates. GroupM is the media-buying arm of ad business WPP.

"There will only be so much money to go around for subscription fees. If consumers continue to increase their spending on all forms of video (which amounted to $140 billion last year for video services, cinema and DVDs) at historical rates through 2024, there will only be an incremental $20 billion in consumer spending available for new services. This is roughly equal to the amount of new spending on content that we estimate," Wieser said in GroupM's worldwide media forecast report, published Monday.

"This suggests that financial contributions from these new services will not be net positive anytime soon," the report stated.

Netflix has already seen the impact of this, with a mixed earnings report in October that showed a beat on earnings but a miss on subscribers. In January, it increased its most popular HD streaming plan from $10.99 per month to $12.99 per month and said the price increase was partially to blame for its subscriber miss. It projected 7.6 million additional subscribers for its fourth quarter, versus 8.8 million for the same quarter a year earlier.

Peter Stern, vice president of services at Apple Inc., speaks during an event at the Steve Jobs Theater in Cupertino, California, U.S., on Monday, March 25, 2019. The company is unveiling streaming video and news subscriptions, key parts of Apple's push to transform itself into a leading digital services provider. Photographer: David Paul Morris/Bloomberg via Getty Images
David Paul Morris | Bloomberg | Getty Images

Meanwhile, Disney+ is trying to woo subscribers with a bundle that includes Hulu and ESPN+ for $12.99 a month, and HBO Max (part of AT&T-owned WarnerMedia) will cost $14.99 a month from May 2020, with the hope being that regular HBO subscribers will convert to HBO Max. In November, AppleTV launched its streaming service costing $4.99 a month.

During a call with shareholders in November, Disney's CEO Bob Iger said: "We're making a huge statement about the future of media and entertainment and our continued ability to thrive in this new era." At its investor day in April, Disney forecast that Disney+ would be profitable by its 2024 financial year, with 60 million to 90 million paid subscribers.

The media industry is rapidly changing as consumers cancel their contracts with pay TV providers, known as cord-cutting. Traditional providers are having to spend vast amounts on creating new content for streaming, but the concern is that they may cannibalize their existing content in doing so.

"Some of the new SVOD (subscription video on demand) services are launched by traditional TV owners, and accelerating investment in SVOD content will partially depend on overcoming the friction tied to cannibalizing existing revenue streams. These are hard decisions. Taking risks and making investments will help futureproof their businesses, but not every company will do all they need to in the short term in order to ensure long-term health," Wieser stated.

Advertising is unlikely to contribute to revenue growth in the short-term because subscription services are often ad-free, although Comcast's Peacock is reportedly considering an ad-supported version as well as one that is paid-for.

This may present a conundrum for advertisers, which have traditionally used TV for mass-reach brand-building campaigns. While much TV ad spending has shifted online, it still represents about 40% of a large brand's annual media budget. Advertisers may look to spend their marketing dollars elsewhere, with a possible uplift in digital billboard video advertising and branded experiences, Wieser suggested.

Disclosure: Comcast is the owner of NBCUniversal, parent company of CNBC and

Watch CNBC's full interview with Disney CEO Bob Iger on Q4 earnings
Watch CNBC's full interview with Disney CEO Bob Iger on Q4 earnings