Apple (AAPL) Lets Video Streaming Apps Bypass App Store's Cut
Apple AAPL recently extended an established program for premium subscription video entertainment providers and qualifying apps such as Amazon’s AMZN prime video streaming service, which can now offer customers the option to buy or rent movies and TV shows using the payment method tied to their existing video subscription, per a Bloomberg report.
Additionally, the program also covers features like integration with Apple TV app, AirPlay 2, universal search and single sign-on integration among others. Canal+, owned by Vivendi SA, and Altice USA Inc.’s Altice One have joined Apple’s program in recent years.
For most apps, Apple’s App Store policy requires that digital content be purchased and paid for through Apple’s payment system, which takes a 30% cut of the purchase price.
Amazon for years has prevented users from directly purchasing movies and TV shows from the prime video app on Apple devices.
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Apple’s Strengthening Third-Party Relations With Amazon
Apple and Amazon have deepened their relationship in recent years. Last year, Amazon agreed to remove all third-party resellers on its shopping platform while Apple launched an official retailer section for its products on Amazon.
Moreover, in December 2019, Apple Music, Apple TV+ and Apple Podcasts were rolled out to Amazon’s fleet of smart home devices. This partnership made Amazon Echo the first third-party client for the Apple Podcasts service.
Many apps including Netflix NFLX, Tinder, Spotify SPOT and Amazon others have bypassed the Apple’s App Store fees at times by redirecting users to a website.
Through the current program, the Amazon prime video app for iPhone, iPad, and Apple TV now allow customers in the United States, United Kingdom and Germany to purchase and rent movies and TV shows within the app. Apple appears to be allowing Amazon to use its own payment system, skirting the traditional in-app purchase screens.
Amazon recently added a new prime video Cinema hub to its app, highlighting movies running in theaters that can be purchased. Adding in-app purchase options on Apple TV, iPhone, and iPad for prime service subscribers is likely to boost revenues for Amazon without paying a cut.
Users can enjoy premium Amazon prime video content directly on native iPhone, iPad and Apple TV apps. Previously, users were compelled to buy the TV show or film through Safari or an app on another platform.
Impact on Apple’s Top Line
In 2016, Apple started allowing subscription services to keep an extra 15% of revenues if a customer signed up for and maintained a subscription through iOS for longer than a year. This new program is an extension of that approach, exempting certain partners from its 30% cut so long as they work closely to help promote the Apple ecosystem.
We believe that the revenues generated from premium subscription video entertainment providers on App Store offset the money spent by Apple on maintaining the App Store and costs incurred in enforcing its stringent content, privacy, and security guidelines.
Moreover, it ensures the App Store remains a top-line growth contributor for Apple at a time when services are becoming a vital part of its business.
In first-quarter fiscal 2020, this Zacks Rank #3 (Hold) company witnessed double-digit growth in services across all geographic segments. Robust performance of cloud services, music, payment services and the App Store search ad business drove Services revenues. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
App Store reported a record first-quarter performance. Third-party subscription revenues increased 40% year over year.
However, the current limit to premium subscription video services is expected to encourage game developers and other content developers to push for the same benefits. Moreover, the program is likely to reflect adversely on the company’s top line in the near term.
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