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Netflix Execs Welcome Competition From Apple While Throwing a Little Shade

By Danny Vena – Updated Apr 14, 2019 at 11:49AM

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The history between the two tech companies is complicated, and it's about to get worse.

On the surface, the comment sounded amiable enough.

At a press event Monday, Netflix (NFLX 1.53%) CEO Reed Hastings said that while "Apple (AAPL 3.08%) is a great company...we prefer to let our customers watch our content on our service. We have chosen not to integrate with their service." 

Hastings was referring to the long-anticipated introduction of an Apple video streaming service that's expected to debut at an event on March 25. It's been publicized with the tagline, "It's show time." Speculation about the event says Apple's new service will include original content as well as subscriptions to other streaming services as part of its offering. With these new comments, Netflix is saying it will not be one of the participants.

An Apple TV with a variety of viewing options.

Image source: Apple.

Singing a different tune

Netflix's chief content officer Ted Sarandos wasn't nearly as diplomatic as Hastings in his comments about the potential new competition on Monday, even taking a shot at would-be competitors.

While Hastings took the high road, Sarandos was much less circumspect about the new round of rivals. In an interview with Deadline Hollywood, Sarandos initially said, "I have no idea what they're doing until we see it...so, I have to really reserve comment and judgment."

He dismissed the idea that Netflix would be destroyed by the coming competition then went on the offensive. "We've been competing with 500 channels of cable and penetrated nearly every household in the world for a long time," he said. "So, it's the same stable of competitors just very late to the game." 

Taken together, the Hastings and Sarandos comments serve to illustrate the long and complicated relationship between the tech giants while also highlighting the growing competition in an extremely competitive marketplace.

Check out the latest earnings call transcripts for Netflix and Apple.

All are welcome

A host of new streaming services are in the planning stages, coming not only from Apple but the likes of Disney, AT&T, and NBCUniversal, a division of Comcast. This increases the likelihood that there could be another top-tier player in the space.

While Hastings was more circumspect, he doesn't seem concerned about the upcoming potential competition, saying, "We always had massive competitors," as Amazon and Hulu were early streaming rivals. Of the soon-to-debut competition, Hastings said, "These are amazing, large, well-funded companies with very significant efforts. They are going to do some great shows. I'm going to be envious." 

At the same time, the CEO believes Netflix needs to remain focused on its own offerings rather than worrying too much about the competition. "Our success doesn't determine their success," Hastings said. "We will make this a better industry if we have better competitors."

It's complicated

Hastings was tactful about rejecting Apple's speculated streaming service, but Netflix turning down the invitation wasn't too surprising. The relationship between the two has recently become strained.

The ability to sign up for Netflix through Apple's App Store was initially a boon for Netflix, giving the streaming provider far greater visibility than it might have achieved on its own. After nearly three years, however, Netflix became frustrated with Apple taking a chunk of the monthly subscription price for customers that chose to sign up via the App Store and pay with iTunes. Apple assessed Netflix and other app developers a 30% commission on subscriptions for the first 12 months, then 15% for each successive month. This charge has been labeled the "Apple Tax" by detractors.

Netflix began testing a workaround in mid-2018 that would redirect new and renewing customers to the company's website, cutting Apple -- and its commission -- out of the equation. Earlier this year, Netflix announced it would no longer support iTunes as a payment method for new members.

Why isn't Netflix worried?

The competition is ramping up on several fronts, so are Hastings and company just whistling in the dark, or do they know something we don't? Apple and Disney may be among the toughest competitors Netflix has faced yet, and they are certainly among the most well funded.

The key to navigating a more challenging competitive environment, according to Hastings, is by doing what the company does best. "All we have to do to succeed is to continue to stream great content and not get too distracted," he said. That strategy has helped Netflix become the premiere streaming service in the world, with more than 139 million subscribers and growing. Maybe Hastings is on to something after all.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Danny Vena owns shares of Apple and Walt Disney and has the following options: long January 2021 $85 calls on Walt Disney. The Motley Fool owns shares of and recommends Amazon, Apple, Netflix, and Walt Disney. The Motley Fool has the following options: short January 2020 $155 calls on Apple and long January 2020 $150 calls on Apple. The Motley Fool recommends Comcast. The Motley Fool has a disclosure policy.

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