Media analysts have become belatedly sceptical about the prospects of profitability for online video services. Major media companies have rushed online and invested heavily to try and replicate the apparent success of Netflix. They are now realising that online video may not be such a good business compared to their traditional distribution models.

In its 2023 media and entertainment industry outlook, Deloitte notes that it has been 15 years since the online video revolution began, presumably attributing this to January 2007 when Netflix began an online version of its video rental service, with a modest 1,000 titles.

Leading providers in the United States have since established global footprints and many media providers around the world have launched their own online video services.

Gone are the revenues enjoyed in the cable television era, Deloitte says. Online video generates less revenue. Competition for subscribers is fierce and cancelling subscriptions is easy.

Media companies are turning to advertising in an attempt to replace the lucrative television model but have so far failed to replicate the profitability of their traditional business.

Analysts MoffettNathanson put it more bluntly in their latest research report.

“Cash flows are sorry ghosts of their former selves. Balance sheets are loaded with debt in a higher interest rate environment. Rather than being the new sliced bread, investors and executives have accepted that streaming is, in fact, not a good business — at least not compared to what came before.”

“The industry is hurtling towards a climax where once great companies will have to face the reality that they can no longer afford to light money on fire chasing profits that do not exist,” they write. “For some, this simply means a new age of rationalisation. For others, acquisition may prove the only salvation. For all, the present state of affairs cannot continue.”

Ironically, many analysts and investors have been encouraging big media companies to move online, embrace direct-to-consumer subscriptions, then add advertising.

So far, few of these attempts have turned a profit, supported as they were by the back catalogues and production powerhouses of traditional media businesses.

The problem is that traditional viewing and accompanying profits are declining faster than they are being replaced by revenues from online services that have required heavy investment.

There will be winners but not everyone will win. The market, that is to say consumers, will not sustain the current range of online video services. Expect further aggregation and consolidation.