Discounts are a tried-and-true way to sell longer-term subscriptions and Apple (AAPL 2.45%) knows it. This week, the Mac maker rolled out a new annual subscription option for Apple Arcade, the company's Netflix-esque service that includes unlimited access to a massive and growing catalog of premium mobile games. Consumers can now sign up for a full year of the service for $50, which represents a 17% discount compared to the $60 that it would cost paying $5 per month over the course of a year.
It's the latest move that Apple is making to juice its services business.
Apple wants longer commitments
After being unveiled in March, Apple Arcade launched in September with around 100 titles, with more games being added to the library every month. Thus far, the service has garnered positive reviews, thanks in part to eschewing ads and the loathed in-app purchase model, combined with the aggressive price point of $5 per month. The annual subscription option brings the cost down to $4.17 per month, further strengthening the already strong value proposition.
In contrast, it took Apple nearly two years before it added an annual subscription for Apple Music, which initially launched in June 2015. That service's discount parallels Apple Arcade's, with a year of Apple Music costing $99 compared to the monthly option of $10 per month. The music-streaming service is fundamentally more complicated, as Apple must contend with record labels that own licensing rights. With Apple Arcade, the company is helping fund development and undoubtedly has greater control over the service's terms.
Apple TV+, the company's video-streaming service that launched last month, similarly includes an annual subscription at the same price point of $50 per year. But with the tech giant currently giving away a free year of Apple TV+ with hardware purchases, Apple has certainly already signed up millions of users for service for the next year. The company owns all of the underlying original content for Apple TV+, allowing it to set whatever terms it likes.
Apple is reportedly working on a services bundle, another popular discounting strategy among subscription businesses. The company could potentially choose to stack discounts, offering savings for a bundle in addition to longer terms.
Marching to 500 million
Apple has been pulling all of the growth levers it has at its disposal for paid subscriptions, a critical metric for its services segment. At the end of the third quarter, Apple had 450 million paid subscriptions across its platforms, with CFO Luca Maestri confirming that "we are well on our way to our goal of surpassing the 500 million mark during 2020."
While Apple Arcade carries some cannibalization risk, given the sheer popularity of the in-app purchase model in the context of mobile games, it seems that Apple would still rather grow paid subscriptions that provide a stable base of recurring revenue.