We still have the better part of a week before Apple (NASDAQ:AAPL) holds its March 25 special event. There, the company is expected to unveil its new video streaming platform. However, one detail has now been confirmed: Netflix (NASDAQ:NFLX) will not be part of it. That has been suspected — given the two companies’ skirmishing over the past few years — but on Monday Netflix told media specifically that it will not be participating in the new Apple video streaming service.
The statement also confirms that AAPL and NFLX will be entering a new phase of their relationship, becoming head-to-head competitors.
Netflix Takes a Pass on Apple Video Streaming Service
March 25 will be a big day. AAPL is holding its first special event of the year, where the company is expected to take the wraps off the long-awaited Apple video streaming service.
This is especially important for the company and AAPL owners as they face slowing iPhone demand. Monthly subscriptions for video streaming will bring in the type of recurring revenue AAPL is looking for as a way to supplement those sliding iPhone sales.
The latest take on Apple’s plans has the company offering its own original content as part of a hub — where subscriptions to other streaming services would also be offered. That would put all the services a customer subscribes to under a single, Apple video streaming umbrella. It would be more convenient for users (at least those who own AAPL hardware like an Apple TV). Critically for Apple, the company would take its traditional cut of subscriptions. That currently stands at 30% of the subscription revenue for the first year, and 15% for subsequent years.
However, Netflix announced on Monday that it will not participate in Apple’s scheme.
At a press event in Los Angeles, Netflix CEO Reed Hastings added: “Apple’s a great company. We want to have people watch our shows on our services.”
Building Tension Becomes Direct Competition
While Hastings was diplomatic in his dismissal of the Apple video streaming service, tension has been building between the two companies for several years.
In 2016, AAPL announced a new TV app for its Apple TV and other devices. This was designed to be a unified hub that tracked all the streaming services a customer subscribed to, so they could pick up where they left off when moving from device to device. Netflix refused to be a part of that.
Last year, NFLX began testing the concept of removing the ability to subscribe via its iOS app, directing users to its website to bypass Apple’s 30% subscription cut. That move became policy last December, when Netflix officially killed in-app payment. Signing up for a Netflix account and paying for a subscription became slightly more complicated for iOS and Apple TV users, but Netflix cut off that revenue flow to Apple.
It had been expected that Netflix would end up competing head-to-head with the coming Apple video streaming service, and that has now been confirmed. However, the two companies will still rely on each other.
AAPL would find it tougher to sell hardware if there was no Netflix app available for them, while NFLX would risk losing a sizeable chunk of its subscribers if they couldn’t use their Apple TV, iPhone or iPad to view content. But the two companies will also be competing for those same subscribers.
As paying for multiple streaming subscriptions becomes the new norm, there will be room for both Netflix and the Apple video streaming service. And there is lots of revenue potential for AAPL through its video hub — just not from Netflix.
However, if consumers were to hunker down and decide that one or two subscriptions is all they will pay for, then the competition gets tougher and the relationship between Netflix and Apple is bound to become more adversarial.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.