Netflix is testing how to bypass iTunes billing

Streaming giant Netflix is reportedly looking into ways to break free from Apple’s revenue sharing scheme by bypassing iTunes billing altogether.

“We are constantly innovating and testing new signup approaches on different platforms to better understand what our members like,” a Netflix spokesperson said. “Based on what we learn, we work to improve the Netflix experience for members everywhere.”

Apple’s App Store Guidelines bar developers from directly or indirectly enticing users to use a purchasing method other than the In-App Purchase mechanism. Netflix’s solution: in some markets, completely remove the option to sign up for the service from within the iOS app.

TechCrunch said today it’s confirmed with Netflix they’re testing a new billing method in 33 countries, indicating the streaming company is dead serious about bypassing iTunes.

The test basically disables In-App Subscriptions in Netflix for iOS and tvOS.

The billing test is running in the following countries: Argentina, Australia, Austria, Belgium, Brazil, Canada, Colombia, Croatia, Czech Republic, Denmark, Ecuador, Finland, France, Germany, Great Britain, Hungary, India, Indonesia, Italy, Japan, Korea, Malaysia, Mexico, Norway, Peru, Philippines, Poland, Slovakia, South Africa, Spain, Sweden, Taiwan and Thailand.

“Until September 30, new or lapsed subscribers in selected markets across Europe, Latin America and Asia will be unable to pay using iTunes,” wrote the publication. “They’re instead getting redirected to the mobile web version to log payment details directly with Netflix.”

By the way, Spotify has tried the same thing and failed. Some other subscription apps work around that by offering 30 percent higher prices for subscriptions made from within the app than what they charge users who would subscribe through the web interface.

This does not clash with Apple’s rules as long as the developer removes the in-app option to sign up for the service. For example, a YouTube Premium subscription is $12.99 on App Store but $9.99 when signing up via the web.

If Netflix proceeds with the plan and decides to switch off iTunes billing altogether, Apple will no longer collect its revenue cut from one of the top-grossing iPhone apps.

On top of that, customers will be required to sign up for the service via the Netflix website using their credit or debit card. While that would significantly increase friction versus Apple’s 1-click buying system on iTunes and App Store, Netflix would keep all the proceeds to itself.

All App Store developers are bound by Apple’s revenue sharing system that entitles the tech giant to 30 percent of subscription revenue. If the developer retains a subscriber for a full twelve months, Apple’s cut decreases to fifteen percent.

It’s no secret Apple has been seeing some stellar growth in Services, a $50 billion annual business on its own. Although the Services segment includes hardware sales like Apple Watch, Apple TV and Beats accessories, most of the segment’s growth comes from subscriptions.

Here’s why…

App Store revenue’s been growing at a much faster clip than iPhone revenue—hence, the significant growth in Services should be attributed to subscriptions rather than app sales.

How do we know the Services segment isn’t growing because of app downloads?

Given iPhone is no linger bringing many new users, the only way Services could experience such a stellar growth is due to existing users who seem to be increasingly subscribing to premium streaming apps like Netflix through the In-App Purchase mechanism.

Would you agree with that assessment?

Let us know in the comments!