Netflix's iOS App Store fee avoidance will only give 'modest' revenue boost
Removal of in-app payments for a Netflix subscription in some markets may be modestly beneficial to the company's overall revenue, but bringing the concept to the U.S. version of the app may not be that beneficial overall for the streaming service.
Following a report from Tuesday revealing the trial, an analyst note from Macquarie Research discusses the attempt to circumvent the App Store's commission fee increases the number of major apps pushing back against the mobile platforms, joining Spotify. Rather than accepting a subscription through the app, paying Apple a commission, Netflix instead points new users in a number of markets to sign up via the website, avoiding the App Store payment mechanism entirely.
While the firm suggests regulatory and legal pressures could affect how the app store model operates, the move by Netflix is a competitive pressure, and one most likely to cause changes in the short term than the other two types.
Apple's 30-percent commission fee was modified in 2016 to allow subscriptions lasting longer than a year to be charged a lower 15-percent rate. Macquarie notes this worked for some time to keep apps with subscriptions on the store, but the decisions of Spotify and Netflix to move away from it is seen as a test of how far they can take it.
Apple could retaliate against Netflix for the move, the analyst note adds, as some of Netflix's tests do include in-app links to subscribe elsewhere, which Apple could argue violates the terms of the App Store. While Apple's guidelines do not prohibit web-based service sign-ups, it does not allow apps to direct users to sign up via a service's website.
Even so, the regulatory and legal pressures may limit Apple's response to the move, leaving the video streaming app to continue with its trial.
It is thought these two pressures could influence Apple's response, due to Apple's existing music subscription service alongside a rumored video streaming offering. As these would directly compete with Netflix, Spotify, and other major subscription services, and are naturally not affected by the App Store commission, taking its competitors to task could draw unwanted attention from regulators, or a lawsuit.
The competitive pressure also arrives in the form of Google Play, as Netflix's app has already disabled in-app subscription sign-ups on Android since May.
The trial could have a "modest" impact on Netflix's revenue, Macquarie speculates, with it increasing by one percent across the 2019 financial year, but only if Netflix can drive all sign-ups outside of the iOS ecosystem.
The analysts suggest the trial is an early step to "prevent any drags" on international streaming average revenue per user (ARPU), with international subscriber growth thought to be still in the middle of the S-curve.
The trial is unlikely to arrive in the U.S. anytime soon, as Macquarie believes there isn't much long-term benefit to be gained, due to its existing subscriber base, unless the company can come up with a way to tempt current iOS subscribers to re-subscribe directly to avoid Apple's charges.
The firm adds that the "under penetrations of iPhones abroad presents less risk" for Netflix to perform its trials outside the US, then if a similar decision was made at the height of Netflix's U.S. growth.
Even with the potential financial benefit from the trial, the analysts also suggest there could be a "downside risk" if Netflix were to make the changes permanent, as this could drag down on mobile sign-ups. According to the firm's data, approximately 35 percent of all of Netflix's sign-ups are performed through app stores on smartphones and tablets.
Following a report from Tuesday revealing the trial, an analyst note from Macquarie Research discusses the attempt to circumvent the App Store's commission fee increases the number of major apps pushing back against the mobile platforms, joining Spotify. Rather than accepting a subscription through the app, paying Apple a commission, Netflix instead points new users in a number of markets to sign up via the website, avoiding the App Store payment mechanism entirely.
While the firm suggests regulatory and legal pressures could affect how the app store model operates, the move by Netflix is a competitive pressure, and one most likely to cause changes in the short term than the other two types.
Apple's 30-percent commission fee was modified in 2016 to allow subscriptions lasting longer than a year to be charged a lower 15-percent rate. Macquarie notes this worked for some time to keep apps with subscriptions on the store, but the decisions of Spotify and Netflix to move away from it is seen as a test of how far they can take it.
Apple could retaliate against Netflix for the move, the analyst note adds, as some of Netflix's tests do include in-app links to subscribe elsewhere, which Apple could argue violates the terms of the App Store. While Apple's guidelines do not prohibit web-based service sign-ups, it does not allow apps to direct users to sign up via a service's website.
Even so, the regulatory and legal pressures may limit Apple's response to the move, leaving the video streaming app to continue with its trial.
It is thought these two pressures could influence Apple's response, due to Apple's existing music subscription service alongside a rumored video streaming offering. As these would directly compete with Netflix, Spotify, and other major subscription services, and are naturally not affected by the App Store commission, taking its competitors to task could draw unwanted attention from regulators, or a lawsuit.
The competitive pressure also arrives in the form of Google Play, as Netflix's app has already disabled in-app subscription sign-ups on Android since May.
The trial could have a "modest" impact on Netflix's revenue, Macquarie speculates, with it increasing by one percent across the 2019 financial year, but only if Netflix can drive all sign-ups outside of the iOS ecosystem.
The analysts suggest the trial is an early step to "prevent any drags" on international streaming average revenue per user (ARPU), with international subscriber growth thought to be still in the middle of the S-curve.
The trial is unlikely to arrive in the U.S. anytime soon, as Macquarie believes there isn't much long-term benefit to be gained, due to its existing subscriber base, unless the company can come up with a way to tempt current iOS subscribers to re-subscribe directly to avoid Apple's charges.
The firm adds that the "under penetrations of iPhones abroad presents less risk" for Netflix to perform its trials outside the US, then if a similar decision was made at the height of Netflix's U.S. growth.
Even with the potential financial benefit from the trial, the analysts also suggest there could be a "downside risk" if Netflix were to make the changes permanent, as this could drag down on mobile sign-ups. According to the firm's data, approximately 35 percent of all of Netflix's sign-ups are performed through app stores on smartphones and tablets.
Comments
Those pre-rolls when you open their website, for one. I've told them several times I hate them, even in chat the support people told me many people are giving them the same complaint but Netflix corporate don't seem to be listening. More public company shit: going public ruins most companies IMO. Eventually I'll be looking for a way out. And then their apps are horrid, and always getting worse. The only bearable one is the ATV3 template one, which is why I'm still using my ATV3 (and youtube). Or they now hide 'my list' in some menu, if you want to see your full list. Or how now when you view your list in a grid they have renamed it with a name (Netflix suggests. Really?) that means they also can also add to your list. How fucked up is that?
And now with them "testing" pre-rolls before you watch your show (i.e. ads for shows, which are annoying, and which will pave the way for ads for other shit). Ads will be the end of my enjoyment of Netflix. Many of the modern films on Netflix are terrible as is. With most of them which appear like they are shot by inexperienced cinematographers who've barely graduated away from still cameras, and who naively assume they same rules apply. Read: generic cinematography. Netflix keep throwing money at the wall to see what sticks, in the content department. They should be far more conservative with their spend and keep the majority of it for people who have already produced truly great entertainment or critically acclaimed works. They no longer have any clue what they are doing.
One of the benefits for the consumer with streaming accounts curated via the iTunes Store, is that you can mix and match what you want, when you want it, all with a central, and convenient, payment management, and curated media via Apple TV or iTunes.
I only think Apple should get a cut if their services are used, how it currently is. I don’t see any issues with the Apps, say Netflix, routing the user through a web browser to sign up outside of Apples services. Thus, Apple should get nothing.
Apps like netflix are necessary for the iPhone to succeed.
Ecosystems like iOS are necessary for Apps to succeed.
FTFY.
Big companies can do this if they want, as they have the brand recognition and $$ to spend on advertising. That is generally a handful of companies in any one market.
If the expectation is that it will only have a modest revenue boost for Netflix, then conversely it will only have a minor impact on Apple.
IMO, Apple should consider some updates to the App Store pricing to keep the developers and content creators from straying - move the one-time fee to 25%, and the longer term subscription fee to 10% (or perhaps two tiers - down to 5% after 2 years of a subscription being maintained). Overall impact on revenue growth should be muted.
Example,
January: subscribe to HBO Go and Hulu
March: cancel HBO Go and Hulu, add Netflix and CBS All access.
ad infinitum/ lather, rinse, repeat
Under those circumstances, why shouldn't I use Apple as my primary payment site?
In the long term, with more and better competitors, do you really think that Netflix will have the luxury of ignoring app subscriptions?
The problem is that they’ll have to deal with a less than favorable user experience by not having a sign up in-app, but that’s really Apple’s fault and not theirs.
Apple Pay for physical purchases is way more reasonable for subscriptions, or say 90/10 from the get go.
I wish the EU would fight Apple on this. Having two ecosystems out there that abuse their market share is a problem. At some point an ecosystem is so big it directly influences economy on a macro scale. This is not Apple from the 90s anymore. It’s a trillion dollar company that dictates how millions of apps are monetized. They are the gatekeepers. They control information, news, everything.
Apple delivered me over $5M in revenues. I wish that was profit though; net profit was actually not that high. They enabled developers like me. But at the same time they allowed an influx of millions of apps to be sold for $0 and changed the perception of value of content. The only way to make money is through IAPs now and offer the game for free, and to corrupt gameplay for monetization schemes. Their practices causes the charts to be dominated by apps that make millions a day and the chart never changes because these devs buy their way to the charts. It’s sickening.
I sincerely hope that the future platform, whatever OS it is, embraces decentralized blockchain based app stores where the rules are rewritten in favor of developers. No marketing bullshit but actually empower devs to monetize properly.
Apple customers are just too valuable to ignore for long, or to attempt to leverage to other devices.
No TV manufacturers are getting a cut per showing if someone watches a certain network's programming on their set. No radio manufacturers are getting a cut per hour when you listen to a certain channel with your head unit.
I do think Apple should get some kind of commission for linking/facilitating the subscription initially, but I don't think 30% for a year is fair and obviously neither do Netflix, Spotify and a few other big players. Apple should get a bigger cut initially, maybe the first (paid) month or quarter maximum and then a cut of subscription pricing (5-10%) for ongoing costs (payment processing, App hosting, support, etc.) The Netflix app is pretty small (not even 100MB) and the streaming traffic isn't running over Apple's servers, so the actual costs to Apple for handling this App are pretty low.
For the big players, the payoff for the "Marketing Service" that they get included in their 30% is pretty moot. Everyone and their dog has heard of Netflix in the US. Perhaps Apple could have a tiered system per country storefront. For example, Apps with a monthly subscription revenue of $1 million or less are in the 30%/15% tier (with the larger percent cut being limited to 1-3 months) and get marketing and Highlights and feature spots in the App Store. For Apps $5 million or less to $1 million 20%/10% and so on so that the bigger the company behind the app, the less they would pay as a percent and consequently the less Apple could waste time in marketing apps that everyone already has. No one needs an Ad for Netflix in the US App Store. Maybe in other countries Netflix could benefit from some marketing boost according to their revenue numbers and consequently pay more via their tier in that storefront and receive the appropriate marketing and other features.
As far as Apple taking a cut of the transaction, it seems like this should always come down to a bang-for-the-buck exercise for people who are paying the bucks. Apple is essentially a middleman in the equation. What is the value that Apple is providing as a middleman? Is Apple adding value or simply reducing your profit? People who are paying for middlemen sometimes underestimate the value that middlemen provide, not just in dollars and cents but in removing friction on both ends: producers pushing into the channel and end customers pulling from the channel. Middlemen who are very efficient to the point of being nearly invisible, all the while keeping things flowing, are more prone to be undervalued. Cutting out the middleman may reduce costs for producers but may make it harder for customers to acquire the producer's product. Companies like Netflix have to be smart, understand the whole system, and know what they are getting for their money at every transaction boundary along the way.
Apple has tried to convince us that the former model is always true. There are cases where point of view Apple is indeed correct especially in the gaming business. But for other apps, where an iOS device is just one of the many methods to access valuable content, I am inclined to say that is not so obvious
.
Netflix is challenging the point of view of Apple. Netflix has a very good marketing channel to get to its customers and can easily test the consumer behavior. If Netflix doubled the price of the iOS subscription, while maintaining the price via the web, what would happen?. If consumers like the service of Netflix; they eventually switch to the lower priced web subscription.
I am the owner of an app development company and a survey among the customers of one of my apps showed that none of them came in contact with my app via the App Store app. Basically this means that for this app the App Store has become a very expensive cloud storage facility. The conclusion for me was the same as Netflix. I informed my customers that the business model changed. The app was free of charge but they had to pay access to the content via a web based interface. They would get 1 month free of charge when switching . None of them complained.
However, on a phone or tablet, it does make more sense to lock things down a bit more for security reasons. But to say that an app dev should pay for access is like saying windows PC program makers should have been doing that since windows held such a dominant command of the market at one point.