HBO's Deal With Apple Is a Smashing Success

By Markets Fool.com

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HBO Now on Apple TV. Image source: Apple.

At Apple's "Spring Forward" event in March, the company proudly announced that it would be the exclusive launch partner for Time Warner HBO's new over-the-top streaming service HBO Now. The service launched in April on iOS devices and Apple TV as a new stand-alone app. For now, the Mac maker is still enjoying its three-month exclusivity window before HBO Now rolls out to other platforms, but it seems the deal has been a smashing success for the premium cable channel operator.

Game of iPhones
According to app analytics tracker App Annie, HBO Now topped the iOS App Store charts in May in terms of overall revenue. That comes after HBO Now launched on April 12 to correspond with the season premiere of Game of Thrones, and users who signed up in April scored a one-month free trial before the $15 per month subscription became effective. HBO Now had reached the No. 2 spot by May 7.

The data suggests not only that Apple and HBO added many new subscribers in those weeks, but also that those subscribers are sticking around even after the free trial has expired.

Good news for Apple, too
Here's another interesting wrinkle to this story. It matters a great deal to HBO which platform a subscriber comes in on. Even among Apple's platforms, there are serious financial considerations. In general, Apple gets its standard 30% cut of all subscriptions generated on iOS, yet only asks for 15% for subscriptions generated on Apple TV. That's why HBO would highly prefer that you watch Game of Thrones on Apple TV instead of an iPhone. When we're talking about subscriptions that can potentially last an indefinite period of time, that's a huge difference in the long run. And once a consumer is subscribed and happy, it's not as if he or she is going to cancel just to resubscribe on a different device all for the sake of HBO.

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Unless HBO was able to negotiate better terms in exchange for the exclusivity provision (the pair never disclosed financial terms of the partnership), HBO Now's success on iOS is bittersweet.

Should Netflix now follow HBO's lead?
HBO Now's early success begs another question: Should Netflix also attempt to sell memberships directly through its apps? Like many other companies, Netflix's app doesn't offer in-app subscriptions directly; instead, users must sign up on Netflix's website.

Clearly, HBO Now garnered a significant number of subscribers who were interested and willing to subscribe within the app itself. What's less clear is whether this is just an early rush of pent-up demand, a function of Apple's exclusivity window, or if HBO is truly removing a potential subscription hurdle.

Will Apple give some back?
It's worth pointing out that the Financial Times reported earlier this month that Apple is considering backing off from its typical 30% cut for media. That hefty toll can be prohibitively expensive for smaller companies that are interested in building businesses on top of Apple's ecosystem. Even larger companies sometimes simply decide it's too much (remember when Amazon.com bought comiXology and immediately killed in-app purchases?).

Seeing as how Apple has always said it tries to operate its digital storefronts at about breakeven, and that the App Store is booming (services revenue jumped 9% last quarter), it could likely afford to give a little bit back to the developers and content partners that help fill its platform with robust content. And it should.

The article HBO's Deal With Apple Is a Smashing Success originally appeared on Fool.com.

Evan Niu, CFA owns shares of Apple and Netflix. The Motley Fool recommends Apple and Netflix. The Motley Fool owns shares of 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.