The fifth season of Game of Thrones has officially landed. For cord cutters signing up for Time Warner's (NYSE:TWX) new HBO NOW over-the-top streaming service to catch the hit show, the company would highly prefer that you watch the hit show on Apple (NASDAQ:AAPL) TV.
That's because where you sign up has significant financial implications behind the scenes, according to a new report from Re/code.
Apple has long taken a 30% cut of all sales through its booming iTunes App Store, which includes subscription services. This is common knowledge at this point. This is also why many companies prefer to sell products and services outside of Apple's reach, and subsequently provide access to these products and services with an app.
Amazon.com has always done it this way, selling Kindle books on its website (instead of through its iOS app) and then allowing the free iOS app to download purchased content, for example. Companies may lose some of the convenience that Apple offers (consider what Amazon did to its Comixology acquisition) to mutual customers, but 30% is a hefty cut.
However, for Apple TV, the Mac maker's demands are somewhat more manageable: Apple only takes 15% of monthly subscription fees for sales generated from Apple TV. HBO NOW is Apple's current headliner for its set top box, enjoying a 3-month exclusivity window before the service rolls out more broadly. HBO NOW is available on all iOS devices as well as Apple TV.
But new subscriptions generated on iOS devices will be subject to the existing 30% cut, while subscriptions from Apple TV will reportedly only hand over 15% to the Cupertino company. Once signed up, users can access HBO NOW from any of these devices.
Other popular services like Netflix and Hulu Plus also enjoy this lower fee.
Slow and steady wins the race
As Apple slowly but surely forges ahead with trying to reinvent the TV, Apple TV will be its primary weapon. As a platform, Apple TV has made steady progress over the years, expanding its feature set and stable of content partners, but there's still a lot of work to do until it can reach critical mass.
Content is king, and in order to promote the growth of content availability, which in turn will promote the growth of the Apple TV user base, Apple recognizes that it must appeal to content providers in the form of lower fees. That's especially true when compared to what premium networks currently face when selling through cable operators, which collect a fee of up to half the monthly charge.
For Apple, its cut under the agency model has never been about profit. Apple's primary goal here is to strengthen its ecosystem and cover its operating costs in the process. Apple has long said that it operates most of its digital storefronts around breakeven -- or at least attempts to. If Apple is enjoying operating income from these stores, it's mostly from its pricey software applications that target creative professionals.
Other than that, so long as there's a very high likelihood that you'll buy an iPhone, iPad, or Mac the next time you're due for an upgrade, that's fine by Apple.
Evan Niu, CFA owns shares of Apple and Netflix. The Motley Fool recommends Amazon.com, Apple, and Netflix. The Motley Fool owns shares of Amazon.com, Apple, and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.