Apple by comparison demands 15% which is
3.5x as much of a cut. Apple provides
credit card processing, and approval into
the App Store (plus according to a comment
in this email, it sounds like they keep
Netflix in the App Store promotion rotation
as "free" ad-space). This isn't anywhere
near the value that AWS provides
Apple provides them access to, literally, nearly a billion potential customers who, on average, spend twice as much on app store purchases relative to Android users. [1]
Apple spends billions of dollars to do this, by creating (by many measures) best-in-class hardware devices, including designing their own bespoke in-house CPUs that trounce the majority of their consumer level competition.
It's not directly comparable to what AWS does, so I'm not sure we could possibly quantify how valuable it is to Netflix vis-a-vis AWS. However: it sure isn't nothing, and may well be 3.5x the value that AWS provides.
[1] https://timesofindia.indiatimes.com/gadgets-news/iphone-user...
This is in many ways the same argument that ISPs used during the net neutrality debates as to why Netflix should have to pay them extra money. Netflix was using all the bandwidth, and ISPs were keeping that access fast... blah, blah, blah. Many of the objections that I had to ISPs trying to double-dip on bandwidth fees back then also apply to this idea that Apple's product to Netflix is its customers.
The thing is that Apple provides a platform for their customers to access Netflix. Apple benefits heavily from Netflix being on their platform, they would lose a lot of customers if every content provider decided to leave iOS tomorrow. Those customers pay Apple for a phone that they can use to watch their favorite TV shows, they pay Apple for a device that can keep pace in capabilities with other tablets and phone OSes on the market.
So the argument that Apple deserves compensation for maintaining a market that is itself regularly compensating them is the same kind of double dipping that ISPs tried to engage in. I pay my ISP for an Internet connection so that I can access websites. People pay Apple for good hardware with a good app store. That's the arrangement; the deal isn't really happening on Netflix's side of the table.
It's very difficult to argue that Apple has invested in best-of-class hardware for Netflix's sake. They did it so that people would pay them money to buy phones. Apple is not selling their phones at a loss, and they were clear during the recent trial with Epic that they do not look at the app store as a revenue target. Taking fees for maintenance is one thing, but it's very difficult to seriously argue that Apple had an idea for a 3rd-party platform and then made an attractive phone in order to support that platform. We all know that it's the other way around.
This talk about Apple being the gatekeeper that graciously allows companies access to a market is also a somewhat dangerous road to go down, because it creates a lot of perverse incentives for the company. I have no doubt that some parts of Apple's leadership do think of their customer base as an asset that they offer other companies. And I think that attitude can help explain some of Apple's lock-in behavior and refusal to work with other platforms, because when users are an asset to be horded and leveraged, it becomes more important to force them to be loyal and to make it harder for them to switch platforms based on your future business decisions.
I feel like one of the biggest lessons of the modern Internet is that it's dangerous for consumers when companies start referring to their customer base as a product. Apple is occasionally a breath of fresh air in that regard. But in this case, not so much.
This is in many ways the same argument that ISPs used during
the net neutrality debates as to why Netflix should have to
pay them extra money.
But there are massive key differences as well. Many ISPs have a local monopoly over broadband access. Many people have only a single choice for a broadband ISP and this can't be changed unless they move to a new address.
By contrast, Apple doesn't even have a majority share of the mobile device market, much less a monopoly. Even if Apple booted Netflix out of the App Store tomorrow (or if Netflix packed up their bags and left) there are still myriad ways one could access Netflix.
The same would not remotely be true if one's ISP blocked Netflix or demanded extra money to use it. Many people have no ISP alternative, and may be locked into contracts. You are under no such contract with Apple. You can switch to another device tomorrow, or use literally dozens of competing operating systems and platforms at the same time.
Apple benefits heavily from Netflix being on their
platform, they would lose a lot of customers if
every content provider decided to leave iOS tomorrow
It's very difficult to argue that Apple has invested in
best-of-class hardware for Netflix's sake.
The same could be said of AWS. Amazon didn't create it solely for Netflix's sake. But more importantly: huh?
We all know that it's the other way around.
Jobs didn't originally want an App Store, yeah, but that was 14+ years ago. Apps downloaded from the App Store are clearly the primary use case for iPhones/iPads in 2021. Apple has invested massively in their app store, payment system, SDKs, XCode, etc. But at any rate, I fail to see how this is even relevant to the question of whether or not Netflix derives value from their relationship with Apple.
My general sense is that most people prefer not to install apps: I know many people that look askance at websites that attempt to funnel them to an app and generally only isntall 1-5 apps beside the default set from Apple.
Not outside of the US, and net neutrality was still considered important.
If my ISP blocked Netflix tomorrow I've got 5G coming into my house and the choice of twenty competing ISPs. I still think the entire company should get dismantled if they were stupid enough to do that from a regulatory POV.
I think that's a very different question than whether or not Apple has a strong argument that Netflix ought to pay them for that value. As an example, Apple extracts value from its customers who sign up for Netflix on its platform. But Apple is not paying any of that money back to its customers, and I doubt it would try to argue that it has an obligation to do so.
The way I see it is:
- Apple customers pay Apple for strong hardware and a vibrant platform that supports their favorite content/apps.
- Developers pay Apple for support/moderation on the app store.
I don't see the loose ends here where Netflix owes Apple anything beyond maintenance costs. Of course both Apple and Netflix benefit from each other. But the argument that Apple is providing Netflix a service by giving them access to those customers twists the relationship that Apple should have with its customers, sets up a bad incentive structure for the company, and feels very analogous to the kind of double-dipping behavior that we called out with ISPs.
The fact that Netflix gets value from Apple's relationship with its own user base does not create some kind of extra obligation for Netflix. Sometimes people/companies do things that happen to benefit other companies as a side effect of selling a product. It doesn't immediately mean everyone else who benefits is obligated to pay them money.
> The same could be said of AWS. Amazon didn't create it solely for Netflix's sake.
I don't think that's analogous at all. Netflix is directly in the category of customer that AWS is designed to serve. AWS is a hosting service that is sold to Netflix and to companies like Netflix, companies that needs hosting.
On the other hand, iOS does not exist for app developers, it exists for consumers. It's a weird perversion of that relationship to treat Netflix like they're a customer. Consumers are the customers.
Plenty of companies invert that relationship (Facebook, Google, etc); those are products where advertisers are the customer and consumers are a product that is given a benefit in the form of a free service. Apple (often to its credit) went a different direction. But it doesn't now get to pretend that it's in both positions at the same time :)
An analogous situation between AWS and iOS would be if Amazon started charging me as a consumer for access to Netflix's servers in addition to charging Netflix for hosting costs, and if AWS then argued that this was a fair price because I was benefiting from Netflix's increased performance on their servers.
> Many ISPs have a local monopoly over broadband access.
ISP monopolies made the problem worse, but their arguments about Netflix paying their "fair share" would have been disingenuous even if they were not monopolies. Customers paid ISPs for access to websites, there was nothing "fair" about ISPs trying to double-dip and charge companies and consumers twice for the same service.
Similarly, Apple customers (the people who buy its hardware and subscribe to its cloud services) pay Apple for access to the market it created. It's not unfair for Netflix to profit off of that market without compensating Apple, because Apple is already being compensated by its real customers. For an Apple exec to argue that its customer base is a service they provide to other companies is a perversion of that relationship. And pretty selective, because again, it's not like Apple is reducing prices or paying out parts of its Netflix profits to consumers for the value they provide Apple by forming that market. At least Facebook is free.
Outside of basic maintenance costs for the stuff jacurtis mentioned, stuff that's necessary to keep the app store free to access: "credit card processing, and approval into the App Store (plus according to a comment in this email, it sounds like they keep Netflix in the App Store promotion rotation as "free" ad-space)", what is Apple providing for Netflix that hasn't already been paid for by consumers?
That's the analogy I see with the ISPs: not the monopoly stuff necessarily, more the illogical feeling that multiple different parties are somehow simultaneously responsible for paying Apple multiple times for the same service or else they're freeloading.
Of course, ultimately Apple will try to extract as much value as possible out of their position, they're a company, that's what they do. They will charge Netflix because they can. But as consumers and onlookers, we don't have to pretend that they have a moral argument or buy into their public justifications about why they have the setup that they have. Netflix is not freeloading on Apple and Apple is not providing a fantastic well-priced service for developers; Apple is exploiting a position of power that allows them to charge both customers and developers twice for the same product (market access).
Many years ago, when BeOS was just getting going, Be CEO and former Apple exec Jean Louis-Gassee was asked what the difference between Be and Apple was. He answered, "We don't shit on our developers." It's disappointing, to say the least, that this is still a valid criticism criticism nearly a quarter-century later.
But I have experienced plenty of users that are comfortable with tapping an app on their phones, and even installing one from an app store, but aren't comfortable with using a web browser.
It's not just older, non-technical users. Lots of kids have never known anything but apps. You know how your "average" Mac/PC user would have looked at you funny if you told them to open a terminal or command prompt 15 years ago? That is how many kids view a web browser these days - a slightly weird relic of an earlier time.
(Just to be clear: I detest this state of affairs!)
And even if they did, 15% of their revenue for marketing? Forever? That is some amazingly expensive marketing.
Apple is extracting rent, plain and simple. If they truly cared to partner with Netflix and make them successful, they wouldn’t have launched their own competing product that they get to host on their App Store rent-free.
Or how about this: maybe they could do the right thing even if they make less profit? Because they make limitless amounts of money as it is? Nah, that doesn’t sound right.. it’s better to keep on inviting the wrath of higher powers so that they can juice the earnings per share.
Are they providing them access or are the not denying them access?
It is not a simple "pipe" between developers and users.
For developers it provides seamless and secure payments, SDKs, APIs, an IDE, and app distribution and updates to roughly a billion customers.
For end-users, it provides a mostly seamless experience, and (unlike other app stores) a nearly airtight guarantee that an app won't be fraudulent, won't install spyware, won't fuck up your machine, and can be easily uninstalled if you don't like it.
There are myriad flaws, and we can choose hate the overarching concept of folks needing an "app store" instead of simply running apt-get or whatever like Real Computer Users™. We can certainly choose to hate many things about it, like Apple's gatekeeping w.r.t. adult/controversial apps or their maddening review process.
But the things they do provide are significant and clearly have value to many.
So yes, I think it's appropriate to think of them as "providing access" and not merely "not denying it."
In reality there are many general service platforms that provide access to Netflix in combination with ISPs.
If chrome had a 15% fee to allow users to access websites then I think it would be pretty damaging to innovation on the web.
It would also be very damaging to Chrome, because users would promptly download another browser. People generally carry one phone and switching to another is much more costly than switching browsers.
On the flip side, if Apple were to no longer provide access to Netflix to those customers, they would be downright hostile about it and would be a watershed moment for Android. What % would change their next phone to one that "Has Netflix"? 10%? 20%? What would it cost Apples reputation to no longer support the juggernaut media consumption app? billions, probably.
Apple knows how much time people spend watching Netflix on their devices, they are not in a position to be negotiating.
I know anecdotally my mother would be on the phone almost immediately asking what android tablet to buy if this was to ever happen.