Apple Inc. (NASDAQ:AAPL) has failed to deliver the subscription TV bundle that has been rumored for the past year … but that doesn’t mean it has given up on taking over your television. Step one was last year’s new Apple TV streaming box and step two was the new TV app unveiled at its October MacBook Pro event.
And now we know step three — or at least Bloomberg does– and that’s to discount the App Store fee paid by subscription video apps by 50%.
Cutting App Store Fees to Boost Video App Participation
The App Store is a significant revenue generator for AAPL. For 2015, the company was estimated to have reaped over $6 billion in revenue, on total App Store sales of over $20 billion. The exact numbers aren’t known because Apple folds those App Store numbers into its Services division, but based on a press release from the company touting the $20 billion-plus revenue last year and a 30% cut of revenue, that’s what the math says.
However, according to a report from Bloomberg, AAPL is planning to halve that royalty rate for video subscription apps. At least, it will for those that agree to integration in Apple’s own new TV app, which made its public debut on stage at October’s big Apple event.
The New TV App is Key to the Discount, But…
According to Bloomberg, Apple’s new TV app is key to getting that 50% royalty discount. If a video subscription service does not integrate with the app — which AAPL is positioning as a hub for video viewing across iOS devices including the Apple TV — it continues to pay a 30% cut on all its earnings.
Play ball with Apple and that gets cut to 15%. That seems like a win for content providers. But there’s a catch.
By positioning its new TV app as the single video viewing hub for a customer, Apple is putting itself in the driver’s seat when it comes to related data and content curation.
For example, Netflix, Inc. (NASDAQ:NFLX) knows an awful lot about its subscribers, particularly their viewing habits. This data can be very valuable — it can be used for everything from targeting new content to negotiating licensing fees with movie studios — but even when using the current Netflix app on an Apple TV or iPhone, it remains proprietary to Netflix. The same thing with content curation. Netflix can engage customers by recommending content based on data it’s collected about their viewing habits.
Move Netflix to within the new TV app and now Apple is also tracking that information. However, it has the advantage of tracking the info across multiple video services, making it even more valuable. Or potentially helping Apple with any ambitions about developing its own — competing — original programming in the future.
And, AAPL can also make recommendations based on viewing habits, but those suggestions might point to content from a service other than Netflix.
Apple TV Needs Netflix in the New TV App
Apple’s new TV app has the potential to make the Apple TV a much more compelling streaming box. Tracking viewing data across iOS devices, so a user can catch part of a movie at the gym on their iPhone, then automatically pick up where they left off when they sit in front of their TV, is pretty slick. Single sign-on for access to Pay TV subscription apps is a nice touch. Live news and sporting events is a step toward being able to cut the cable.
Having all that content under a single app for easy access and features like smart recommendations is pretty cool.
It may be enough to move more Apple TV units this holiday season, even if they are overpriced compared to the competition. But even with its flashy new TV app, AAPL is going to have a hard time convincing people it’s worth it if a key video streaming services like Netflix refuses to be part of it.
Apple has always held fast against cutting its App Store royalty rate. The move to reduce it by 50% in an attempt to lure video streaming partners shows just how serious it is about leveraging its TV app to help push the Apple TV into the mainstream.
The question is, will Netflix take the bait? According to Wired, the company is “evaluating the opportunity.”
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
