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Netflix Just Made a Big, Bold Change. Is It Really Smart, or Suicidal?

The other day, they became the “opposite of Amazon.” Now they’re taking on Apple and Google.

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BY Bill Murphy Jr. - 23 Aug 2018

Netflix Just Made a Big, Bold Change. Is It Really Smart, or Suicidal?

PHOTO CREDIT: Getty Images


We saw recently how Netflix rolled out some big changes recently, at least one of which really set its members on edge, as it pursues a strategy that in some ways seems to be the opposite of what Amazon Prime does.

But even more recently this week, Netflix revealed it's also pursuing another strategy: one that means a potential head-on clash with both Apple and Google's parent, Alphabet.

While the earlier changes had to do with features and potential advertising--thus things that consumers might encounter almost every time they use Netflix--these changes are about payment. Thus, they're things that are a bit more behind the scenes, and that consumers might only interact with when they sign up, or at most once a month when they're billed.

Here are the changes, the context, and what they could mean for the industry.

The 30 percent rule

To understand what Netflix is rolling out, you first have to consider how people pay for Netflix each month. If you signed up via a smartphone or tablet, chances are you paid via the App Store on Apple or Google Play on Android.

Lots and lots of people do this. According to Bloomberg and TechCrunch, which reported on the change, Netflix is "the No. 1 entertainment app by consumer spend and the most downloaded entertainment app on the Google Play," and "one of the highest-grossing apps on the iOS App Store."

But, both Apple and Alphabet take a cut: 30 percent for the first year, and 15 percent for each subsequent year. And Netflix is betting that they can do better by getting members to move away from the in-app purchases, and instead pay Netflix directly, while cutting out the middlemen.

"Until September 30, new or lapsed subscribers in selected markets across Europe, Latin America and Asia," reports TechCrunch, "will be unable pay using iTunes. They are instead getting redirected to the mobile web version to log payment details directly with Netflix."

Separately, Bloomberg reports that if you've tried to join or renew a subscription via Google Play, that option has been disabled for at least some customers since May.

Platform vs. app

For smaller customers, the idea of taking on Apple or Alphabet--to say nothing of taking them both on at the same time--would seem foolhardy, even suicidal. But the biggest players on the app stores, including not only Netflix but other giant players like Spotify (which has its own similar effort), are in a different position.

Their brands are so strong independently of Apple or Google, that they rival the platforms. Obviously we're aware that Apple is a $1 trillion company and Alphabet is at about $840 billion, while Netflix is "only" worth about $150 billion. But they're certainly not in "squash me like a bug territory," and it makes sense for them to try to assert a bit of dominance, and grab back the 15 or 30 percent.

So far, Netflix is calling this just a test, and says it's running in 33 countries--Canada, Australia, India, Mexico and Great Britain among them--but not the United States, yet.

But as TechCrunch points out, that might be coming, because the company missed its revenue and subscriber targets in its most recent report.

If growth is slowing, the only way to keep investors happy might be to make more money from each of its 130 million-plus subscribers. And one less painful way to do that is to cut down how much it has to pay other companies, like Apple and Google, for the privilege of billing its own customers.



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