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Netflix Pulls the Plug on New In-App iOS Subscriptions

Netflix confirmed it will no longer allow in-app iOS subscription payment for new users

By Brad Moon, InvestorPlace Contributor

http://bit.ly/2AqHFVR

Source: Netflix

Apple (NASDAQ:AAPL) got a lump of coal in its stocking this holiday season, courtesy of Netflix (NASDAQ:NFLX). In-app subscriptions to the streaming video service have been a significant contributor to Apple Services revenue, thanks to the chunk of every payment that goes to Apple when someone subscribes through an iOS app. However, a few days after Christmas, Netflix confirmed that it no longer allows sign-up and payment through the iOS app, requiring users to instead use its website.

That’s a lot less convenient for new Netflix users but more importantly from AAPL’s perspective, the move eliminates its cut from the most lucrative app on the App Store.

Netflix Finally Pulls the Plug on In-App iOS Subscriptions

Through the summer, Netflix fired a warning shot at AAPL. The company updated its iOS app, preventing users in some countries from paying for a new subscription through its iOS app. Instead, they were directed to the Netflix website. By August, the experiment had expanded to 33 countries, although the U.S. was not affected. In September, the in-app payment option was restored.

Not for long, however.

On Dec. 28, Netflix confirmed that it has now rolled out that change globally, telling Venturebeat: “We no longer support iTunes as a method of payment for new members.”

A Netflix representative confirmed that existing iOS customers can continue to pay their subscription through their iTunes account (so Apple Services revenue from the app isn’t eliminated altogether). If someone lets their subscription lapse for a month, they won’t be able to re-activate and pay via the iOS app, they’ll also be forced to set up payment through the Netflix website.

Inconvenient for Customers?

In-app subscriptions are more convenient for most customers. This option means one less billing outlet to keep track of, since their Netflix subscription piggybacks on an existing iTunes account. There’s also no additional cost for customers. In fact, paying through iTunes has had the added benefit for some of effectively cutting their Netflix monthly rate because they are able to load up their iTunes account with Apple gift cards, which are often discounted as much as 20% at retailers. 

Having to sign up and enter billing info through the Netflix website is a minor inconvenience, but clearly Netflix saw little pushback during its summer “experiment.” The company also forces new Android users to pay through its website.

A Blow to Apple Services Revenue

Why would Netflix want to make the initial sign-up process a little more difficult for new iOS subscribers? APPL is coming out with its own streaming video service in 2019, so this could be a swat to let AAPL know that Netflix now sees it as a competitor.

Without a doubt, the primary reason is money. For every subscription initiated through an iOS app, Apple takes a 30% cut for the first year and 15% after that. While this is great for Apple Services revenue, app publishers have begun to chafe against this model — we spiked this out as a risk to App Store revenue just two weeks ago.

In particular, Netflix was a potential problem. Its app was identified as the highest grossing of 2018 on the App Store, pulling in nearly $800 million as of the end of November. Netflix was losing either 30% or 15% (depending on the length the subscription had been in place) of every dollar to Apple, and at a time when NFLX is increasingly under pressure to boost revenue as new subscribers become more difficult to sign up. That pressure already led the company to boost rates in Canada last month. Bypassing AAPL is a way to collect more cash without causing grumbling from customers over higher rates.

So the move to prevent new customers from paying for their Netflix subscription from within their iOS app isn’t really a surprise. But the move is a blow to Apple Services revenue. And it’s not great news for AAPL investors who have been looking to Services to take the load off iPhone revenue in a softening smartphone market. When the highest grossing app decides to bypass in-app payment, that sets the stage for others to follow.

As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2018/12/netflix-pulls-the-plug-on-new-in-app-ios-subscriptions/.

©2019 InvestorPlace Media, LLC