iPhone sales are falling, and Apple’s app fees might be next

Apple shares have plunged 25 per cent from their peak in early October

This March 19, 2018, file photo shows Apple’s App Store app in Baltimore. As its iPhone sales slip, Apple has been touting its growing digital-services business as the engine that will keep profits up. But there may be a catch. Apple currently pockets a generous commission on all subscriptions and other purchases made on iPhone apps. But a brewing backlash against the company‚ cut, which ranges from 15 to 30 percent, could undercut the app store‚ profitability just as Apple is counting on it most. (AP Photo/Patrick Semansky, File)

As iPhone sales slip , Apple has been positioning its booming digital-services business as its new profit engine. But there could be a snag in that plan.

A brewing backlash against the rich commissions Apple earns from all purchases and subscriptions made via iPhone apps could undercut the app store, which generates about a third of the company’s services revenue.

READ MORE: Samsung folding phone is different – but also almost $2,000

Late last year, Netflix rebelled against Apple’s fees, which can range from 15 per cent to 30 per cent. Analysts fear other companies may follow. And attorneys representing consumers in a pending Supreme Court case charge that Apple is an unfair monopolist in the market for iPhone apps. An adverse decision in that case could open a legal door that might eventually force Apple to cut its generous commissions.

Apple shares have plunged 25 per cent from their peak in early October thanks to concern over iPhone sales. Investors are now hanging onto Apple services as a “life preserver in the choppy seas” just as it’s about to float away, Macquarie Securities analyst Benjamin Schachter concluded after the Netflix move.

These app-store fees mostly hit app developers themselves, although some pass along the costs to users of their iPhone apps. Spotify, for instance, used to tack $3 onto the cost of its $10-a-month paid service — but only for users who signed up via its iPhone or iPad app.

Apple has doubled down on digital services as consumers cling to older iPhone models, hurting sales. Apple’s iPhone revenue this year is expected to drop by 15 per cent from last year $141 billion, according to analysts surveyed by FactSet.

Services, by contrast, are expected to generate about $46 billion in revenue this year, according to the same survey. Schachter estimates the app store will account for $16 billion of the services revenue. By those estimates, both services and app store revenue will have doubled in just three years.

Apple didn’t respond to the AP’s inquiries about its app fees. It has previously defended the system as reasonable compensation for reviewing all apps and ensuring its store remains a safe and secure place for e-commerce. Google charges similar fees in its own app store, although its overall business isn’t as dependent on them.

Besides the app fees, Apple’s services division includes revenue from its Apple Music streaming service, iCloud storage, Apple Care, Apple Pay and ad commissions that Google pays to be the iPhone’s built-in search engine. Apple is also expected to roll out its own streaming-video service this spring, although few details are available.

The potential streaming competition from Apple may have triggered Netflix decision’s to stop allowing customers to pay for new video subscriptions through its iPhone app. Instead, it directs users to its website, thus avoiding the extra fees. (Netflix did likewise with Google’s app store last year.)

Netflix alone won’t put a significant dent in Apple’s finances, even though it paid Apple more money last year than any other non-gaming app, according to App Annie, a firm that tracks the app market. That sum came to about $110 million, accounting for just 0.3 per cent of the services division revenue, based on disclosures made in Apple’s earnings calls last year. More than 30,000 third-party apps now accept subscriptions through Apple’s store.

Michael Liedtke, The Associated Press

Like us on Facebook and follow us on Twitter

Just Posted

ESSO Fun Day aims to introduce girls to hockey

The WLMHA is once again working to bring female hockey to the forefront

CRD Board Highlights: 2019 budget approved

The CCRHD’s operating budget for 2019 is $9.4 million

INDUSTRIAL UPDATE: Taseko-Gibraltar: a partner for environmental protection

Planning for environmentally responsible activities is part of Gibraltar’s commitment

LETTER: To the thieves who stole my son’s work clothes

If you want something, get a job and buy it for yourself

INDUSTRIAL UPDATE: Tolko Lakeview Sawmill rebuild 85 per cent complete

Janice Lockyer, communications advisor for Tolko provided answers to our questions:

Mueller finds no Trump collusion, leaves obstruction open

But while Mueller fully ruled out criminal collusion, he was more circumspect on presidential obstruction of justice

Woman wants Tofino to get a nude beach

“They may enjoy a surf and then walk around naked and just be free.”

Ice climbers scale Canada’s tallest waterfall on Vancouver Island

Ice climbers Chris Jensen, Will Gadd and Peter Hoang made history

New Coast Guard ship crashes into breakwater in Victoria

‘It is fairly unprecedented that it would happen’

Sparks fly as SUV speeds down wrong side of Highway 1 trying to flee RCMP

Captured on video, the vehicle headed westbound against oncoming traffic before crashing

Fundraising campaign launched for man caught in SilverStar avalanche

In only two days, the GoFundMe surpassed its $15,000 goal

B.C. doctor reprimanded for accessing medical records without consent

Doctor admits to accessing records of the woman carrying his child

Video service to compete with Netflix, Amazon expected from Apple on Monday

The iPhone has long been Apple’s marquee product and main money maker, but sales are starting to decline

Kootenay city councillor starts nationwide climate caucus for municipal politicians

Climate Leadership Caucus has 57 members including seven mayors

Most Read