Evercore: Why Apple is giving Amazon a tax break

Tim Cook did it to make Apple TV sticker, says analyst Amit Daryanani, not to get Elizabeth Warren off his case.

From a note to clients that landed on my desktop Friday:

All You Need to Know: A lot of attention this week around Apple enabling Prime Video users to purchase content while avoiding the App Store revenue sharing program. We do not think this is indicative of some fundamental shift in Apple’s strategy or an attempt to “get ahead of regulation”. This appears more driven by a desire to bolster Apple TV offerings and making the App stickier…

Fundamentally, Apple is offering a small concession and in exchange Amazon will make sure Prime Video is fully integrated into the Apple TV app (rather than as a standalone). This integration will support a stickier install base as users can spend more time within the Apple ecosystem.

Critically, Apple still takes a cut of all new subscriptions that are purchased through Prime Video (we checked this new subscriptions are going via. Apple payment). Outside of gaming, we think subscriptions are a larger portion of the app store revenue base vs one-off purchases. The program that allows Amazon to use its own payment system is designed for “premium subscription video entertainment providers”, but NFLX is notably not a part of the program. Notably, NFLX does not offer the option to make one-off purchases of content, so it would be tough to cut a similar deal as we do not think Apple will back down on subscription revenue unless it is forced to legally.

Net/net: Apple gets a major partner for its efforts to build out a TV streaming ecosystem in exchange for a relatively minor concession. We think it is a mistake to interpret this news as indicative of a broader shift in the App Store revenue sharing model.

Maintains Outperform rating and $325 target.

My take: Still feels like a blink to me.

See also: Apple blinks, Amazon links

6 Comments

  1. John Konopka said:
    “ Still feels like a blink to me.”

    Maybe. Having been witness to several business decisions I suspect there was more going on inside than we are privy to.

    1
    April 3, 2020
  2. Fred Stein said:
    Yup, agree with Amit’s view and think the strategy is smart. Philip, I think you meant ‘stickier’.

    This may be good time to point out how Tim Cook excels at not being greedy and winning. Look at the initial Apple Pay. Apple took only .15%, while payment processors take about 2.7%. Before Apple Pay, other mobile payment models tried to take business. Soon enough Android copied Apple’s successful model. Still Apple Pay “trounces” Per Emarketer.com Google and Samsung Pay.

    With Amazon, Apple “plays nice”, especially since Amazon has the customer relationship with Prime. Both Apple and Amazon are the most trusted names by consumers. Both are late comers to streaming, and pricing aggressively. It’s win/win.

    4
    April 3, 2020
  3. David Drinkwater said:
    I suspect that Apple can do better with a good Amazon relationship and Amazon can do better with a good Apple relationship than either can do anywhere else. I could be wrong, but I am happily invested in both.

    1
    April 3, 2020
    • Fred Stein said:
      You’re not wrong – not at all. Both have the best customers, demographically. Both give us great customers experiences; And we expect that to continue.

      0
      April 4, 2020
  4. Romeo A Esparrago Jr said:
    We’ve seen hell freeze over before.
    Like when Apple brought iTunes over to Windows.
    Then, like now, my opinion is that perceived concessions in the present is actually part of a broader map to victory, of which there are many roads & paths.
    Winning the hearts & minds.
    For Tim & Apple, it’s just not skills, experience, & smarts, it’s art.

    5
    April 4, 2020

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