By Alexandra Canal

Lourdes Balduque via Getty Images

For years, the world's biggest media companies struggled to make money off of their streaming services. The culprits: pricey content, user churn, and lots of competition.

In 2024, that finally changed.

The five giants — Netflix (NFLX), Disney (DIS), Paramount (PARA), NBCUniversal's Peacock (CMCSA), and Warner Bros. Discovery's Max (WBD) — collectively reported a profit in the first nine months of the year for the very first time. In total, those five companies delivered earnings of roughly $5.9 billion, significantly ahead of the $142 million loss the group reported in the year-ago period.

Netflix led the charge, pulling in roughly $6.9 billion in earnings in the first three quarters. (Wall Street declared the company the unofficial winner of the streaming wars.) But there's more: Earlier this week the company reported an additional $1.87 billion in profits to end the fourth quarter — and nearly 20 million more subscribers.

The other four media giants will report fourth quarter results later this month and next, with Comcast first up on Jan. 30. A big question for investors is whether or not traditional players can successfully follow the leader.

Last year delivered some early answers. Disney and Paramount Global each reported their first quarter of streaming profits in August. Also, Peacock significantly narrowed year-over-year losses, while WBD's streaming profits ended the year on positive footing.

Macquarie analyst Tim Nollen categorized the improvements as "progress," but cautioned that even the streamers who have hit profitability don't have enough profits to generate significant margins. Most, with the obvious exception of Netflix, have hit just around breakeven.

For Morningstar analyst Matthew Dolgin, the key to success is "the pace of revenue growth." He added, "To me, profits are a lot about scale. ... So if you can increase scale, which we saw some benefits from this past year, then you can maintain profitability."

For traditional media companies, he continued, being profitable isn't enough. "Because they have terrible linear businesses that continue to decline, they need streaming to be more than just profitable. They need streaming to produce fast-growing profits."

What lies ahead

The "streaming wars," which unofficially kicked off in November 2019 following the launch of Disney's flagship streaming platform, set off an accelerated race for content, talent, and subscribers. That led to an era of overspending as platforms, both new and established, raced to lure top producers and secure the most sought-after shows.

But investors quickly realized that it's difficult to monetize users, justify the high cost of content, keep subscribers engaged, and turn a profit. One of the biggest reasons: streaming's low price point. With the exception of cable replacement services like YouTube TV and Hulu + Live TV, prices can range anywhere from $4.99 a month to $22.99.

That low cost means more subscribers are needed to generate significant returns.

In response to investors' growing profit fears, companies adjusted their strategies and were eventually able to attract more subscribers through controversial password-sharing crackdowns and multi-tier subscription offerings, in addition to more strategic content acquisitions and the return of key original programming.

Companies also shifted how aggressively they spend their money. Instead of ballooning content budgets and releasing as many shows as possible, streamers pulled back to focus on more quality over quantity projects.

"Everything was kind of messy for a few years," Macquarie's Nollen said. "Streamers are finally getting the revenue and cost lines to balance out. But it's questionable how profitable these services can be."

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One obstacle to achieving consistent profits is combating increased churn in the face of higher prices. (Netflix became the latest platform to boost subscription costs in the US, bumping the prices of its various tiers earlier this week.)

"The bigger risk is really retaining the customer base and figuring out whether we get to a threshold where there are too many platforms," Morningstar's Dolgin said. Also, "there's a limit" to how much more streamers can raise prices. Simultaneously, there's a limit to how many more subscribers streamers can add.

"Somewhere, you need to get that right in order to keep profits growing at a good pace," he said.

To combat fickle subscribers, competing platforms are now bundling their services together. As WBD CEO David Zaslav told investors last year, "There's more strength together."

"I have a difficult time envisioning a scenario where any one of these players takes Netflix's mantle," Dolgin said. "So [bundling with one another] is how they close the gap. They don't do it individually. They could potentially do it as a collective."

And if recent news of mass layoffs and restructurings are any indication (Case in point: CNN's digital revamp), the road to catching up to Netflix — and just basic survival in the streaming-first era — might be a bumpy one.

Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.

Source: Yahoo finance