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Home / Technology / Neflix's Latest Move Could Hundreds Of Millions Of Dollars – The Motley Fool

Neflix's Latest Move Could Hundreds Of Millions Of Dollars – The Motley Fool



Back in August, Netflix (NASDAQ: NFLX) was testing removing in-app subscriptions on iOS devices. At the end of 2018, it pulled the plug entirely for new and returning subscribers. New signs now have to enter payment information via a web browser instead of subscribing in the app. Netflix removed the option to subscribe in-app on Android devices in May.

Apple (NASDAQ: AAPL) and Google, the Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) company, take 30% of all in-app subscription revenue for the first year of a subscription. That falls to 1

5% in subsequent years.

Removing in-app subscriptions will save up to hundreds of millions in distribution over the long term.

 A person sitting in an airport watching a video on a tablet.

Image source: Netflix

How much could Netflix save?

It's important to note that existing subscribers won't see any changes to their existing billing methods. Netflix subscribers paid $ 853 million through the Apple App Store in 2018, according to data from Sensor Tower.

If all of those subscribers keep their subscription in 2019, Apple won't see much negative impact. Of course, subscribers tend to cancel subscriptions from time to time, or switch from iOS to Android (and vice versa).

What's more is that sales through the App Store grew $ 343 million over 2017, which was up $ 295 million from 2016. And the incremental growth does not show the entire picture of how much of that gross revenue is from new sign-ups.

If it had made the decision to stop new sign-ups from subscribing in-app Netflix would probably have added $ 350 million in gross subscription revenue via the App Store in 2019. Based on that estimate, the decision will save $ 105 million in distribution, it would have otherwise paid Apple in 2019 alone.

Revenue from iOS devices are considerably higher than revenue from Android. Google Play subscribers generated $ 105 million in gross revenue for 2018. That was affected by Netflix's decision to remove in-app Android subscriptions in May, and that number is now declining.

It's no surprise that Apple generates the bulk or in-app subscriptions for Netflix. Apple customers are on average, more than just users, and Netflix is ​​a premium product in many parts of the world.

Removing in-app subscriptions for new sign-ups doesn’t make it possible for Netflix the bottom line.

t come without risks. Requires users to go through a web browser and enter their payment information produces a significant amount of friction in the process, which could result in some potential customers abandoning their original plans.

That's why Netflix took the steps to test how users react back in August. Apparently, management liked what it saw, and abandonment wasn't a significant issue. Even a small percentage of customers due to increased friction is worth it for Netflix to save the commission it pays Apple.

On the other side of the equation, though, is an increased force driving users to sign up. That's Netflix's investments in its content library and marketing. As Netflix, content content is released with new originals and licensed content, especially in international markets, and users are more inclined to take the extra step to sign up. But it needs to spend more on marketing, too, to inform non-subscribers of all the benefits of signing up.

While Apple and Google are distributing partners for meaningful service to most subscription apps, Netflix has outgrown them. With over 130 million paid subscribers, a $ 2 billion marketing budget, and a $ 8 billion content budget, Netflix can pay you the Apple or Google distribution tax.

In fact, with its spending so high on marketing and content,

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Adam Levy owns shares of Alphabet (C shares) and Apple. The Motley Fool owns shares of and recommends Alphabet (A and C shares), Apple, and Netflix. The Motley Fool has the following options: long January 2020 $ 150 calls on Apple and short January 2020 $ 155 calls on Apple. The Motley Fool has a disclosure policy.


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