Netflix's New iTunes Billing Policy Will Curb a $256 Million Revenue Stream For Apple (venturebeat.com)

Early last year, Netflix allowed some iOS users in more than two dozen markets to bypass the iTunes payment method as part of an experiment. The streaming company is now incorporating the change globally, curbing a $256 million revenue stream for Apple. "According to new data compiled by Sensor Tower, Netflix grossed $853 million in 2018 on the iOS App Store," reports TechCrunch. "Based on that figure, Apple's take would have been around $256 million, the firm said." The new policy change allows Netflix to avoid paying the 15% levy that Apple charges on in-app subscriptions. From a report: "We no longer support iTunes as a method of payment for new members," a Netflix spokesperson told VentureBeat. Existing members, however, can continue to use iTunes as a method of payment, the spokesperson added.

The company did not share exactly when it rolled out the change globally, but a support representative VentureBeat spoke with pegged the timeframe as late last month. Additionally, the support rep added that customers who are rejoining Netflix using an iOS device, after having canceled payment for at least one month, also won't be able to use iTunes billing. The move, which will allow Netflix to keep all proceeds from its new paying iPhone and iPad customers, underscores the tension between developers and the marquee distributors of mobile apps -- Apple and Google.

Comments

Re:Yep, fuck iTunes.

[Anonymous Coward]

I'm surprised they didn't do this already.

Also 15% of 853 million isn't 256 million its 128.

Re:I am not going to spread my payment data

[gravewax]

I think they will be just fine with that. unless 10's of millions think the same they are certainly much better off. basically Apple reduces the income and puts upward pressure on price, not supporting them is better for everyone long term.

I don't pay by iTunes but this is good for me

[rsilvergun]

I'd rather that money to go to buying more content for me then to Apple for a minor convenience service. You could license a lot of shows/movies for that and/or make more.

How long before Apple turns them off?

[mysidia]

  Since bypassing Apple for purchase of In-App services is against ToS; How long before Apple suspends the Netflix app in the iTunes store and disables existing installations on Apple customers' hardware with an error message indicating "This app is currently unavailable, because the creator, 'Netflix', is in breach of the Apple Developer Agreement" ?

Re:How long before Apple turns them off?

[zlives]

around the same time they start charging amazon for 15% of all amazon sales...

Re:How long before Apple turns them off?

[The-Ixian]

Good luck with that, Apple. Disable Netflix on all those AppleTV devices.... go ahead..... see how much heat Netflix gets over it as opposed to how much heat Apple gets....

I am guessing that Apple would basically be shooting themselves in the foot on that deal.

Re:How long before Apple turns them off?

[Richard_at_work]

It's not in breach of Apples TOS - what Netflix is doing is allowed and has been since day one, see Amazons Kindle app which does the same (can't buy books or take out a Prime subscription through it, but can consume paid for content via it).

Re:How long before Apple turns them off?

[CaptainDork]

Apple does not require all apps to go through the iTunes store. I have plenty of apps on my iPhone and not one goddam instance of iTunes anywhere.

Re:How long before Apple turns them off?

[nctritech]

It's not the same thing as if you're buying pants for your in-game character. Netflix is already a subscription service that exists outside of the Apple ecosystem. The Netflix app just lets you access that existing subscription.

Re:How long before Apple turns them off?

[WaffleMonster]

Since bypassing Apple for purchase of In-App services is against ToS; How long before Apple suspends the Netflix app in the iTunes store and disables existing installations on Apple customers' hardware with an error message indicating "This app is currently unavailable, because the creator, 'Netflix', is in breach of the Apple Developer Agreement" ?

Apple is already skating on thin ice WRT anti-trust scrutiny. Probably not in their best interests to push their luck to the max.

Re: How long before Apple turns them off?

[gnasher719]

Itâ(TM)s NOT against the AppStore rules at all. The AppStore rules say: IF you purchase through the app, it must go through the AppStore. And Netflix cannot advertise other payment methods in the app. As long as users find the Netflix website without help through the app and pay there, this is absolutely within the rules.

I have no idea what their app looks like, but I assume it starts with a page where you enter your Netflix username and password, and thatâ(TM)s fine. If thereâ(TM)s a button âoego to the Netflix website to payâ it will be removed from the store. And if there was a button âoeSubscribe through iTunesâ, that button has just been removed by Netflix. Absolutely fine according to the AppStore rules.

Re: How long before Apple turns them off?

[Agripa]

You are using Netflix wrong.

30% are simply robbery

[klingens]

A 30% margin which is standard in all kinds of app stores, Steam, Google, Apple, Microsoft is highway robbery pure and simple. That is the root of the problem here.

Even when Steam back in the day set this number, and all others followed it, it was high for what they provided. Steam was and still mostly is a monopoly so they can get away with it. Same for Apple and the others of course. However in this day and age these surcharges have no basis in reality anymore. A brick+mortar needs that 30% margin due to overhead of an actual store in expensive city areas, personnel costs or maybe even transport costs for small stores. Online retailers for bits have none of these and therefore shouldn't have to charge for them. At least if one has a working market, which appstores are not. They instead are money printing machines.

After Epic/Fortnite started their own appstore with "only" 12%, Bethesda made their own launcher and store selling their game there exclusively, Act/Blizzard doing the same for BO4, etc. Steam is slowly backing down from their usury, at least for the big sellers above 10 million $ they go to 25%. Slow step, not enough, but at least step in the proper direction.

Re: 30% are simply robbery

[KixWooder]

They charged Netflix 15%, not 30%.

Re:30% are simply robbery

[ThosLives]

You must really hate buying anything from a retail store then. Typical markup in a retail store is "50%" - which is phrased to be purposely misleading. Markup in retail is "the percent of the retail price which is the markup." So retail markup is to double the retailer's cost.

30% originally was therefore a really good deal - a producer getting 70% of sale price rather than 50% is much better than putting stuff on a retail shelf.

The market is currently in another price discovery stage, where companies are now able to put in place their own infrastructure or be able to support lower rates than 30%. Trying to vilify companies offering storefronts for using value pricing (which is what every sales organization ever does if they want to stay profitable) is disingenuous.

Re:30% are simply robbery

[CaptainDork]

I think you might want to look up ...

We're /. We don't usury look shit up.

Re:30% are simply robbery

[bsolar]

The reason retail stores have such high markups is because they also have pretty high costs. You cannot compare them to a digital store, where costs are much lower. A retail shop with 50% markup might barely survive, where a digital store would swim in money...

This is especially true for an application like Netflix, where the actual content is not hosted by Apple, only the application is. The Apple Store merely provides the download for the application plus updates and manages payment transactions: these costs are marginal at best and not nearly enough to justify a 30% cut the first year, nor the 15% cut subsequent years.

Re:30% are simply robbery

[Wycliffe]

There is a huge difference between a storefront selling something and what Apple is doing. A physical storefront has to pay for shipping the getting the goods to the storefront as well as the physical store and the people to work at the store. Also, with a physical storefront, you generally have the choice of dozens of stores.
Lastly, manufacturers can sell directly to consumers, set up their own stores, etc.... Basically storefronts might double the price but they are providing a lot of value to the customer.

Apple is providing practically zero value to the customer, has almost zero overhead, and doesn't allow competing storefronts. At least with android, android gives you the option to sideload apps. Apple doesn't even give you that. As far as providing "free advertising", that's pretty much worthless too. If you want to actually promote your app, Apple charges extra to the developer for that. 30% is highway robbery and they only reason they are able to charge it is because they have a complete monopoly.

Re:30% are simply robbery

[nctritech]

This isn't a markup, it's a middleman fee skimmed off the top. The two things are very different. 30% markup means Netflix gets 30% more than something cost them; a 30% fee means Netflix loses 30% of the subscription fee. Netflix presumably set their standard subscription rate to a price that enabled their business to sustain modest growth; 30% deducted from it could result in losses instead. How would your household work if you suddenly started not receiving 30% of your gross income?

Re:30% are simply robbery

[ThosLives]

I'll give you unknown actual value to the customer and no competing storefronts, but not zero overhead (servers and managing payment isn't free by a long shot).

But the 30% / 15% or whatever Apple or Steam or whoever charges the publisher isn't based on their cost, or even the value to the customer - it's based on the value to the person wanting to sell. That's what value pricing means.

If I was a content creator 5 years ago and my choices were to hire a place to press media and stock shelves, roll my own sales site including setting up merchant agreements, or just pay Apple or Steam 30% of the sale price, it's a no-brainer to go for the 30%.

Today it's a bit different - there are enough alternative distribution mechanisms that 30% is no longer the no-question deal. Bigger companies like Netflix can now afford the infrastructure at a lower cost, and alternative storefronts can now offer lower rates too. Even talking about the "Apple monopoly" I think is a red herring - nobody, even with all the lock-in efforts, truly has that much loyalty to not jump ship to other ecosystems (consider the recent revenue stuff in the press).

But if you're an indie game developer - tell me how you're going to get better total revenue than Apple or Steam or Google Play or whatever even with their 30% take. On how many storefronts do you want to have to ensure your product is up to date?

Re: 30% are simply robbery

[Swampash]

They charge all apps 30% in the first year, 15% in successive years. Netflix doesn't get a special rate, and GP's comment about charging 30% is perfectly valid.

Netflix does get a special rate for the first year, 15%. GP's comment about charging 30% is wrong.

Re:30% are simply robbery

[WaffleMonster]

You must really hate buying anything from a retail store then. Typical markup in a retail store is "50%" - which is phrased to be purposely misleading. Markup in retail is "the percent of the retail price which is the markup." So retail markup is to double the retailer's cost.

Retail stores have physical inventory to maintain. They need to pay people to stock shelves, man cash registers and manage supply chain. Comparing electronic copying of bits and bytes to retail stores is ridiculous.

At least I can go to most retail stores and buy the same shit. With these electronic distribution monopolies you have no choice. If you want something there is often only one place you can get it.

The market is currently in another price discovery stage, where companies are now able to put in place their own infrastructure or be able to support lower rates than 30%. Trying to vilify companies offering storefronts for using value pricing (which is what every sales organization ever does if they want to stay profitable) is disingenuous.

Comparing retail with app stores is disingenuous.

Re:30% are simply robbery

[tlhIngan]

You cannot compare them to a digital store, where costs are much lower. A retail shop with 50% markup might barely survive, where a digital store would swim in money...

OK. given the iTunes store is around 50% apps that are free, tell me how Apple swims in money taking 30% of $0.

OK, now tell me how Apple swims in money taking 30% of a 99 cent app, which is around the majority of paid apps. (Or music, for example). That's around 29 cents for Apple, 70 cents for the developer or music label.

Of that 29 cents that Apple makes, Apple needs to pay the credit card company their per-transaction fee (20-30 cents, depending on the card - 20 cents if you use an ultra basic no frills credit card, 30 cents if it's a "gold" card or higher with points/rewards/warranty extensions/etc). Plus 3-5% of the cost of the transaction itself. Debit is no cheaper, generally costing 25 cents and 1%. Remember, these are the same fees everyone cries "I want the cash discount!" for when they pay cash at a retail store, and Apple is subject to them as well.

And of that remainder, Apple pays hosting and bandwidth and taxes and tech support.

Truth is, Apple only makes money when people charge $2 or more for their stuff, and that money has to subsidize everyone else "freeloading". It's what makes it tough to cut the rate.

Some stores, like Epic Games, can charge 12% easily, because their main products don't sell for "Free" or "99 cents". In fact, they're unlikely to sell for like than $5, so on the average, you can charge 12% and make money as long as what you're selling is more than $3 or so (which is around 36 cents). Of course, if they get flooded with dozens of 99 cent apps with 99 cent in-app payments, you might see them put restrictions on that sort of deal because it costs them more in the end.

Of course, sometimes I wish Apple would handle stuff like cable subscriptions and such - being able to cancel with a tap is worth paying the extra markup instead of having to deal with being an hour on hold, another hour of customer retention, another hour of saying "yes I really want to cancel", and then hoping they actually do cancel and not bill you the next month where you spend another 3 hours to get your "credit back in the next 6 months". Just unsubscribe, and that's it - no muss, no fuss, no extra billing.

Re:30% are simply robbery

[Bert64]

There's also a huge difference between a storefront selling physical goods, and someone selling virtual goods. Selling virtual goods always has almost no overhead.

Re:30% are simply robbery

[bsolar]

Most "free" apps still earn revenue through ads or in-app purchases which obviously generate revenue for Apple too.

You cannot compare the payment transaction fees you pay at a retail store with Apple's: they are very likely to have special deals e.g. for massive amounts of small transactions and other discounts.

Not to mention that if you use Apple Pay the bank has actually to pay Apple back a percentage for the transaction...

Re:Yep, fuck iTunes.

[Anubis IV]

Also 15% of 853 million isn't 256 million its 128.

Glad someone pointed that out. Also worth noting, this only affects new subscriptions or people who let their subscriptions lapse. Existing subscriptions are unaffected, and likely will be for the foreseeable future, so it’s not as if that $128 million is drying up overnight.

Re:I am not going to spread my payment data

[Anonymous Coward]

Having the FREE app available in the Apple store or not (as a walled garden model) is an entirely different issue than using their 15%-off-the-top payment parasite. Conflating the two is exactly the sort of thoughtlessness I expect here.

However, I might expect Apple to be exactly as thoughtless and reactionary as you are being, I think we can maybe expect them to pull the app for some BS excuse of a reason. That's their M.O. to be sure.

Re:iTunes discount

[aitikin]

Most of the ways I've seen iTunes gift cards that cheap have Netflix gift cards similarly priced...

Apple under attack from all corners

[Anonymous Coward]

Man, rough times are in store for Apple ahead.

Netflix shutting down any form of collaboration (not that Apple added any value for what Netflix paid them)
Qualcomm blocking their sales in Europe
Chinese demand down due to their prices being too high and increased competition
Netflix kicking them to the curb
And a class action suit stating that the walled garden they put up for the App Store is harming consumers that reached the Supreme Court: https://www.wsj.com/articles/apples-app-store-under-fire-in-supreme-court-case-1543254841

Tim Cook's got a lot to fix.

Re: Apple under attack from all corners

[gnasher719]

Qualcomm isnâ(TM)t shutting down Apple sales in Europe. In Germany it is very easy to get a preliminary injunction which Qualcomm did - the price is that Qualcomm had to put $1.5bn into escrow to pay Appleâ(TM)s damages when this preliminary injunction finally fails. Apple cannot sell their cheaper phones in Apple Stores in Germany, but can continue selling in other stores, and Qualcomm quite likely will have to pay any damages caused to Apple through this.

Re:Yep, fuck iTunes.

[rednip]

Does 'cutting out the middle man' save any money for the consumer? No.

While I pay for Netflix directly, I've bought some subscriptions, simply because it minimizes the steps to cancel once I'm done catching up on content (I'm looking at you, 'AMC Premier'). It also reduces my exposure to credit card fraud because , a single bill is easier to explore and I'm fairly certain that they cannot simply raise a price without an explict opt in on the new rate.

Re:Can't imagine that will stand

[Wycliffe]

I can't imagine Apple allowing that sort of behavior to stand.
All they would have to do is pull the app from iTunes. They aren't required to provide the user base to Netflix for nothin ya know.

What percentage of people watch Netflix exclusively on iOS? My guess is even if they pulled the app, most people wouldn't care because they are using a roku, a smart tv, or some other non-ios app to watch Netflix.

I am surprised though that Apple and Netflix didn't negotiate the rate down to something more reasonable like 5%. It would seem to be beneficial to both of them to negotiate this rate. My guess is that they did try to secretly negotiate and this is just each side trying to call each other's bluff. Either that or Netflix is starting to see Apple as a competitor and has decided that giving any money to a competitor is bad.

Re:I am not going to spread my payment data

[ZipK]

I am not going to spread my payment data

Get a credit card that lets you create new virtual cards with date and dollar limits. Create a virtual card for Netflix for the amount of your annual subscription. Renew via Netflix website. Done.

Re:I am not going to spread my payment data

[kpainter]

Then pull their app out of the store.

That really would trigger an anti-trust lawsu... oh, wait. No it wouldn't.

Re: Yep, fuck iTunes.

[Anonymous Coward]

It might not mean a reduction in price for the consumer, but it could mean that Netflix has more money to produce more content ala Bright, BirdBox, Daredevil, etc.

If the customer is getting more for the same price, it still is a benefit, just not the same sort of benefit.

Re:Yep, fuck iTunes.

[bob4u2c]

The article states that Apple was charging 30% a few years ago, but cut renewal rates to 15%. And yes, the article say the $256 million was a high estimate.

Still $128 million just to funnel funds from one account to another seems a tad bit too much.

A typical credit card processor with that much in sales would take around 2%, or about $17 million.

Re:I am not going to spread my payment data

[Kyr Arvin]

Netflix is blowing up, iTunes is just sitting around collecting 15% checks and doing jack shit for the money. Netflix doesn't need that kind of distributor.

Then pull their app out of the store.

I've been a subscriber of Netflix for over 10 years, since I started streaming I've been using their apps on the Playstation 3 and 4, the Roku, an iphone, and an android device. But now if I want to use it on an ipad or something I'd have to eat (or netflix would, same thing) a 15% fee for content that's not going over Apple's network? That would be ridiculous.

Consoles are easy

[tepples]

It's seriously strange, right out of the videogame console world or some bullshit like that.

Why do people put up with it on video game consoles in the first place? Because consoles are harder to screw up than a personal computer. Likewise with iOS devices.

Re: People will put up with ANYTHING

[tepples]

In the case of Netflix, it's not paying for a computer program as much as paying to rent movies and TV shows.

In the case of other categories of program that are traditionally proprietary, such as jurisdiction-specific tax preparation tools and video games, how else would you recommend to cover the cost to house the developers?

Re: People will put up with ANYTHING

[Bert64]

such as jurisdiction-specific tax preparation tools

I would imagine it's in the interest of that jurisdiction to ensure that people complete their tax returns accurately, so they should fund the development using some of the tax revenue.

Re: I am not going to spread my payment data

[gnasher719]

You donâ(TM)t pay extra.

You have a subscription through Netflixâ(TM) website and had one for ten years. Unless Netflix says you canâ(TM)t use it with their iIS app, it will just work and you pay nothing extra. However, if you paid for a subscription through the iOS app, then Netflix (not you) paid 15% to Apple. Similar if you paid through a Google app, not through the website.

The only change is that Netflix is removing your ability to go through the iOS app.

Re: Apple needs to remove Netflix app

[dskoll]

Netflix can survive quite nicely without "playing in the Apple ecosystem." If forced to choose between an Apple device and Netflix... Android would suddenly become very popular.

Re: Can't imagine that will stand

[gnasher719]

Apple has a long standing tradition that they have the same terms for everyone. No matter how big or small you are. It started with the iTunes Store where Apple negotiated term with the five biggest record companies, and then they told everyone âoethese are the terms, and we take records from any record company accepting these terms, no better and no worse than the big five, and no negotiationsâ.

Netflix agreed to the App Store rules, and the still do. Obviously itâ(TM)s up to them to write the app to be most beneficial to Netflix, as long as they agree to the AppStore rules.

STOP IRS TAKEOVER campaign

[tepples]

it's in the interest of that jurisdiction to ensure that people complete their tax returns accurately

Not necessarily for two reasons. First, it's in the government's interest for people who are entitled to deductions or credits to miss those deductions or credits. Second, it's in the (conflicted) interest of the members of the legislature to stay in office. Big tax preparers like Intuit and H&R Block have spent big bucks to convince legislators that only dirty commies would take tax money to drive private-sector tax preparers out of the market. (Source: "How the Maker of TurboTax Fought Free, Simple Tax Filing" by Liz Day; "CCIA's View on Government Competition")

Re:Yep, fuck iTunes.

[cheekyboy]

A 1% cut is ok, a 15% cut is HIDEOUS

Re: I am not going to spread my payment data

[Plumpaquatsch]

The other change is that you don't reward Apple for doing nothing. It may delay next Netflix price hike. It may allow Netflix to pay for a few shows.

Yeah - or they continue to put even more blatant product placement in their shows.

Re: I am not going to spread my payment data

[Plumpaquatsch]

You donâ(TM)t pay extra. The only change is that Netflix is removing your ability to go through the iOS app.

Well, what changes is that you can no longer pay your Netflix subscription with rebated iTunes cards - which means you actually pay more.

Re:Can't imagine that will stand

[Plumpaquatsch]

I can't imagine Apple allowing that sort of behavior to stand. All they would have to do is pull the app from iTunes. They aren't required to provide the user base to Netflix for nothin ya know.

What percentage of people watch Netflix exclusively on iOS?

Obviously enough that Netflix received over $800 Million a year just from those iOS users that paid for their subscription via the app.

Re:Can't imagine that will stand

[Wycliffe]

Obviously enough that Netflix received over $800 Million a year just from those iOS users that paid for their subscription via the app.

Using IOS to pay for Netflix and occasionally watch Netflix is not the same as watching Netflix exclusively on your phone. My guess is most of that $800 million will still flow to Netflix a different way. Netflix is likely making the same assumption.

Re:Can't imagine that will stand

[Plumpaquatsch]

Obviously enough that Netflix received over $800 Million a year just from those iOS users that paid for their subscription via the app.

Using IOS to pay for Netflix and occasionally watch Netflix is not the same as watching Netflix exclusively on your phone. My guess is most of that $800 million will still flow to Netflix a different way. Netflix is likely making the same assumption.

Yeah. But they may be in for a rude surprise.