Apple halved App Store fee to get Amazon Prime Video on devices

Apple Inc. agreed in 2016 to halve its App Store fee for Amazon.com Inc. as part of a deal to put the e-commerce giant’s Prime Video app on Apple’s mobile devices and TV set-top box.

Eddy Cue, an Apple senior vice president, and Amazon Chief Executive Officer Jeff Bezos negotiated directly on the deal, according to emails released Wednesday as part of a congressional hearing on anticompetitive behavior. The companies agreed to a 15% revenue share for customers who signed up through the app and no revenue share for users who already subscribed via Amazon or elsewhere, the emails showed.

The deal, announced in December 2017, also allowed Amazon’s video service to integrate with Apple’s voice-activated digital assistant, Siri, and the iPhone maker’s TV app, which launched in 2016. In addition, the agreement gave Apple a 15% cut of subscriptions to Amazon Prime partners like Showtime for users who signed up originally through Apple.

Apple generally receives a 30% cut for the first year of an app’s subscriptions made through the platform. That fee drops to 15% after the first year.

The agreement with Amazon is similar to a program Apple announced earlier this year letting select developers avoid the 30% fee in exchange for integrating with certain features. Amazon is part of that program.

The company’s App Store rules and fees have been criticized by some regulators and developers. Members of the House antitrust subcommittee pressed Apple CEO Tim Cook during the hearing about whether the App Store gives the iPhone maker too much control over app developers and blunts competition. The Amazon deal appears to buttress lawmakers’ claims that not all apps are treated equally, a contention Cook rejected during the hearing.

“That is not correct,” Cook said when asked if some developers are treated differently. “We treat every developer the same.”

The App Store is a key part of Apple’s effort to diversify its revenue as smartphone sales growth has slowed. The company reports fiscal third quarter results Thursday and analysts’ project $13.1 billion in revenue from services including the App Store. Services made up 23% of the company’s total revenue in the fiscal second quarter.

Almost a decade ago, Apple executives also considered taking a cut of 40% from some third-party subscriptions accessed through its platform, emails shared by the committee showed.

In a March 2011 email to three executives, Apple’s Cue said the company “should ask for 40% of the first year only but we need to work a few deals to see what is right.”

One of the other executives, Jai Chulani, wrote that Apple “may be leaving money on the table if we just asked for about 30% of the first year” of subscriptions.

The emails were referring to digital content apps, such as those offered by sports leagues and Hulu, the video-streaming service. The discussion was also related specifically to the Apple TV set-top box and it’s unclear if this applied to apps running on the iPhone and iPad as well.

During congressional testimony on Wednesday, Cook said the company’s App Store fees are competitive and noted there are many rivals trying to woo mobile developers and consumers.

The documents shared by the committee also reveal correspondence between Apple and Amazon regarding the 2018 deal for Apple to officially sell devices on Amazon’s website. In the first year of the deal, Amazon expected to bring in $3.2 billion from the deal, including $1.1 billion just from iPhone sales, according to the documents.