- Apple stands to lose a substantial amount of revenue after Netflix dumped iTunes billing.
- Netflix is currently the highest grossing app on the App Store and has to hand Apple up to 30% of user subscriptions billed through iTunes.
- The streaming giant will force new and lapsed users to pay through its website rather than iTunes.
- A chart from analysts at Nomura shows what happened to Apple when Spotify pulled the same trick in 2016.
Apple has had a rough time over the festive period.
In late December, VentureBeat revealed that Netflix would start forcing new and lapsed iOS users to pay for the streaming service through its website, rather than through iTunes.
And on Wednesday, Apple issued a shock revenue warning after iPhone sales and China’s economy were slower than expected.
The Netflix development doesn’t necessarily seem like a big deal, except that Apple earns a considerable amount of money from the streaming service thanks to its 30% levy on subscriptions, in-app content, and one-off payments for anything sold through its App Store.
Basically, if you pay for stuff on apps through Apple, the developer has to hand a slice of that revenue to Apple. This applies to digital content businesses like mobile games and music and streaming services rather than apps like Uber or Airbnb, which provide real-world services.
Netflix is hugely popular and, in the US, it earned more revenue through the App Store than any other app, according to November data from SensorTower. We can assume then that it’s also the top-earning third-party app for Apple. Further figures suggest Apple could end up losing $ 256 million in potential annual revenue thanks to Netflix bypassing iTunes billing. So Apple is about to lose a big chunk of cash from the App Store.
Here’s what that might look like, visualised.
Analysts at Nomura noted that there’s a precedent for Netflix’s move: Spotify has been asking subscribers for years to switch away from paying through Apple. The analysts put together a chart, compiled with data from SensorTower and Instinet, showing just how that affected App Store revenue.
This chart shows that Apple will feel a much bigger drop from Netflix than Spotify:
This isn’t particularly good news for Apple, which is currently trying to persuade investors that its services business can make up for its slowing iPhone revenues. Apple counts revenue made from the App Store as part of its services business. It also includes the money it makes from iCloud, AppleCare, and Apple Music.
Business Insider estimates that revenue from the App Store accounts for almost 40% of Apple’s services business. You can see how we worked that out here. Netflix may not dent that number by itself, but it might set a trend for other big subscription and content businesses – like major news outlets or Tinder – likewise trying to bypass the iTunes billing process.