Bypassing Apple’s billing
Apple (AAPL) earns its App Store revenue by taking a 15%–30% cut of in-app purchases. Gaming has been the App Store’s highest grossing segment, followed by entertainment, which includes Netflix, Hulu, Amazon Prime, and HBO Go apps. Netflix (NFLX) was its highest-grossing app, according to SensorTower. In November alone, consumers spent $86.6 million on Netflix through App Store and Google Play. However, Netflix has found a way to avoid paying Apple the cut by not allowing subscribers to sign up using the iOS app, denting Apple’s App Store revenue.
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Apple’s entertainment app revenue decelerating
According to Morgan Stanley, Apple’s App Store entertainment revenue may be decelerating after several years of ~100% year-over-year growth. The deceleration, which became more dramatic in last year’s last two quarters, may have been behind Apple’s service revenue slowdown.