The streaming giants will soon become their worst enemies

Good times can only last as long as the customers continue to pay higher prices

Lord Thomson, a Canadian media magnate who was a post-war media mogul and owned The Times, among other properties is credited with coining the phrase “a license to print money”. He was referring in his remarks to the winning of the regional ITV franchise Scottish Television during the 1950s. It was not difficult to make a profit with a monopoly in broadcast advertising.

He would, however, be talking about a completely different industry today: streaming. Spotify and Netflix are making huge profits because they have captive audiences all over the world.

It took a lot to get the streaming industry off the ground. But now, it is paying rich dividends to its investors. Spotify increased its prices last week in its biggest market, the United States. The standard plan now costs $11.99 per month (£9.40), and the duo plan is $16.99. This followed similar increases in the UK back in April.

Warner Bros Discovery Max increased its American prices by a dollar per month last week ahead of the release of the blockbuster House of Dragon. Netflix, meanwhile, has increased the price of its popular shows and cracked down on password sharing. Viewers now have to pay for each household, instead of spreading out the cost.

Amazon also started charging extra for its Prime service to remove ads. It was a way of squeezing some money out of their subscribers. Entertainment that was once cheap and free is now becoming more expensive.

This is something that’s hard to criticize. It is certainly paying off. Spotify’s market value has increased by more than 70pc (roughly £55bn ) since the beginning of the year. Netflix’s stock price has risen by 38pc in the past year. It is now worth more than $250bn, surpassing its competitors among tech giants.

The crackdown on password sharing helped increase the number of subscribers to 269 millions people worldwide. It added nine million new subscribers in the last quarter, and revenues increased by 15pc, to $9bn. Profits also rose by 70%. Spotify’s profits and subscriber numbers are also booming.

It is very easy to understand. They have been able to build captive audiences over the past decade and can now squeeze more revenue from them. We are not going to cancel our Spotify and Netflix subscriptions for a few extra pounds a month. We are now addicted to them and can’t live without them.

Thomson would have liked it. They’ve created a modern day licence to print cash, and they look like they can continue to milk that for quite some time. Investors are not surprised that they buy into streamers. Cash will continue to flow and dividends will also.

A licence to print cash is not permanent. Sooner or later, the giants in the industry will be faced with new competition. There are actually two major problems.

The customers will notice first. It’s easy to raise the prices and eliminate all the offers, such as the one-month free trial that were offered to entice people to try the new service. Many people will not notice a dollar or pound per month in a direct debit, and even those who do won’t cancel.

At some point, this will change. The UK and most of Europe are facing a squeeze on household budgets. It is likely that the US will also be affected if the economy slows down in the coming years. If you’re struggling to pay your bills, a streaming service may be nice but not essential. Some of these millions may decide to give up the service after one too many price increases.

It will also create a space for competitors to enter and undercut the price. Spotify still offers good value at £12, £15, or even £20 per month. Netflix is also a good value, as are Disney and Max. Once they reach these price levels, it opens the door for competitors to enter the market and offer a lower-priced offering.

Spotify is already facing stiff competition from Apple, YouTube, Amazon and Chinese giants like TikTok. Disney, Apple, and Amazon have all rival television offerings. It is easy to imagine new players trying to take over the market when they see an opening.

It becomes easier to undercut your competitor as you become more expensive while offering a good product. This is dangerous. It will be difficult to get subscribers back once they start to drift.

Markets will sometimes offer licences to print currency. The market creates a temporary monopoly, and anyone who is lucky enough is able to make a fortune. The streaming giants did a fantastic job building a whole new industry. They figured out how to make this work and signed up hundreds of millions customers. The streaming giants are now making a profit from all their hard work and investors are getting a good return.

No one should expect it to last forever. Just as the ITV franchise wasn’t a simple way to make money for many years. The companies will pay for their actions sooner or later, and this may be the case for streaming giants much earlier than they think.