Netflix will no longer offer in-app subscription purchases for users of iOS devices like iPhones and iPads, VentureBeat reports. The change cuts off a substantial amount of revenue for Apple at a time when it is working hard to encourage app developers to adopt in-app subscriptions as a model, and when it depends on its services business to tell a growth story to its shareholders.
The change applies to customers who are new to Netflix or who have allowed their subscriptions to lapse. For now, customers already using Apple's platform to pay for Netflix can continue to do so.
Subscriptions have been a major focus for Apple of late. In 2017, the company reportedly invited app developers to a meeting in New York City where it laid out a pitch for using a subscription model for software offered in the iOS App Store. Apple positioned subscriptions as the new model for publishing financially successful apps and games on the platform. When its subscriptions program first launched, Apple took a 30 percent cut, but the portion was reduced to 15 percent, heeding developer feedback that the previous cut was too significant.
In recent earnings reports, Apple has highlighted its services business—an umbrella that covers subscriptions—as its big growth area. The company points to revenue from services like this as a counterbalance to the inevitability of its slowing smartphone sales. That said, app subscriptions are not the only major factor in Apple's services business. It also includes Apple Music, iCloud, and many other things.
According to data from Sensor Tower cited by TechCrunch, Netflix grossed about $853 million in the iOS App Store in 2018. At today's 15 percent platform take, that means that Netflix's subscriptions program could face a reduction of more than $120 million as a result of Netflix's decision, should the subscriber numbers be similar in 2019.
Netflix had already ended in-app subscriptions on the Google Play store that Android handset owners use, and Netflix trialed this decision on iOS in some markets before making it the new policy.
That makes sense—Netflix could have something to lose in this change, too. Anyone who has worked in e-commerce or other conversion-oriented businesses knows that any friction at all for users trying to get to that "buy" or "subscribe" button is costly. Even navigating one additional screen can lead to conversion-rate drop-offs in the double digits. Asking would-be customers to go to a different app, website, or device can be even worse. Like Amazon, Netflix is able to do this because customers have confidence in its strong brand.
However, smaller app developers may not have that brand strength, and they might not realistically be able to take this approach. In most cases, they are dependent entirely on Apple for their revenue. Netflix is big enough to challenge Apple where other developers can't.
To that point, this is not the first time Netflix and Apple have split on key initiatives on the latter's platforms—Netflix was omitted from inclusion in Apple's TV app, which is one of the primary selling points of the Apple TV 4K and a cornerstone of the entertainment experience on iOS devices. Most similar services support the TV app, and the lack of Netflix is damaging to the value proposition of Apple's platform for TV lovers.
Apple plans to launch its own TV service as soon as this year, with original programming from high-profile creators already moving forward. The service would likely compete directly with Netflix, so we don't expect the relationship between these two companies to get any cozier in the future.