In the ongoing legal battle between Apple and Epic over App Store pricing, one of the key points has been Apple’s insistence on maintaining a 30% cut as the store’s cornerstone.
But just revealed Apple executives email from the case show that the App Store rules that Apple scoffs at as essential to the fairness of the app economy have been carefully negotiated into existence over time in a way that ensured Apple doesn’t “leave money on the table.”
The emails date back to a 2011 discussion, which included Apple software and services leader Eddy Cue, about how Apple would handle subscription video applications on Apple TV – an important conversation given the growing popularity of streaming services. . And while the discussion doesn’t offer much insight into Apple’s current 30% fee for the App Store, it does reveal just how malleable those rules were when it came to maximizing profits.
The company looked at a variety of options, including a one-time 40% cut, a one-time 30% cut, an ongoing 30% commission, or more personalized deals with services like NBA and MLB.
An email in the thread analyzes the different forms of content partners who would offer subscriptions on Apple TV. He thinks about which partnerships would be fruitful to try and get a cut (like new streaming services) and which ones would not (like “entrenched” cable and satellite companies).
Apple’s team has decided that any iTunes-based transaction or subscription should stick to the same 30 percent cut as the App Store. But there is more discussion about how the company will handle referrals, where Apple TV applications link to a service’s website to allow customers to sign up for the service directly.
The thread then discusses how fees should work when Apple reports a new subscriber. Should the company insist on 30 percent of the initial subscription? 30 percent of the first year? Do you just insist that all subscription apps funnel subscribers through the App Store? There is concern that Hulu Plus may not be able to afford these kinds of costs. Cue replies that Apple should ask for 40% of the first year, but that it may need to come up with some offers first.
A point of concern for Apple was to structure the new fees in such a way as not to undermine the payment structure set up on the App Store. “I don’t want to make deals where we get less than 30%. This is what’s on the App Store and we can’t make a different deal here. If that’s not possible, I want a one-off bounty, but we have to be very careful here so it doesn’t spill over to the app store, “wrote one executive. (The emails are threaded in such a way that it’s hard say who is responding to whom.)
It is important to remember that in 2011, the Apple TV did not actually have an App Store, but only individual apps with which Apple established case-by-case partnerships. And the thread seems to emphasize the ad hoc nature of platform development here – Apple doesn’t seem to go into this with definite ideas of what it needs to make the platform work, just a vague goal of maximizing profit and shaping the rules so that the platform gets the best.
- According to this source Apple executives have discussed not ‘leaving money on the table’ when setting Apple TV subscription rates
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