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Apple exec explains the story behind the video-streaming deal cut with Amazon

On Monday, former Apple marketing senior vice president and current Apple fellow Phil Schiller testified that Apple does reduce its App Store fees for certain companies from 30% to 15% in exchange for them supporting Apple’s TV app.

Schiller was testifying as part of a lawsuit by Fortnite maker Epic Games that is asking a judge to force Apple to allow Epic to install its own app store on iPhones and bypass Apple’s 30% App Store fee.

Schiller said that a few years back, the Apple TV department was working on a way to gather video streams from various apps and integrate them all into one experience for users.

The result was the Apple Video Partner Program, which allows members to take 85% of sales they make through in-app purchases, instead of paying Apple’s typical 30% fee.

“The Apple TV team had a meeting with premium content providers and described the work they were going to do to integrate this new experience. For example, they had to integrate with our Siri voice assistant so we can find any show across any one of those app experiences,” Schiller said. “In talking with those developers, the Apple TV team asked if we could lower the commission to 85/15, not in the second year, but in the first year” to allow them to recoup the engineering costs of supporting the Apple features.

Apple charges developers who are not part of the video partner program 15% in the second year of a subscription billed through Apple’s in-app purchases. Schiller said that any company could get the 15% cut if they join the program and do the engineering work to integrate with Apple’s TV app. It’s not only available to large media companies, Schiller said.

Schiller also said that the program allowed participants to charge users directly, without using Apple’s in-app purchase feature.

“When working with a number of these partners, in particular, the cable providers that are going digital, they had existing movie rental businesses installed as customers. And they asked if they could maintain those existing relationships,” Schiller said, adding that Amazon is one of the companies in the program.

Much of Schiller’s testimony on Monday emphasized how much Apple invests in its developer community to maintain a competitive edge against competing app stores. Schiller said that Apple spends about $50 million per year to hold its annual developers conference and that it is building facilities for outside developers at its headquarters.

Apple started to call its own witnesses, including Schiller, on Monday, and the trial is expected to run through next Monday. Schiller hasn’t been questioned by Epic Games lawyers yet.

Apple and its CEO, Tim Cook, have consistently said that they treat every iPhone developer the same — the same rules for its App Store, the same commissions and the same review process.

Last year, the House Antitrust subcommittee published an email showing Apple online services senior vice president Eddy Cue sending an email to Amazon CEO Jeff Bezos in 2016 about the program.

“Here are the details of what we discussed on Prime Video — Amazon Prime Video app in iOS and Apple TV — 15% rev share for customers that signup using the app (uses our payment); no rev share for customers that already subscribe,” Cue wrote.

Apple’s Premium Video Partner Program was widely reported in April 2020, when the Amazon Prime Video app for iPhones and Apple TV boxes was discovered to be able to charge existing Amazon customers for rentals directly through credit card data it already had — a practice that is usually banned on Apple’s App Store, including for Fortnite.

An Apple spokesman said when it was first reported that it was an established program exclusively for “premium subscription video entertainment” providers including Amazon, Altice and Canal that supported Apple features such as the Apple TV app, AirPlay 2, Siri and Apple’s universal search and wanted to bill their existing customers.

An internal Apple slide deck published as part of the Epic Games trial this month showed Apple employees debating whether to offer “video partner program benefits” to Netflix in 2018 when the video streamer was considering whether to discontinue using Apple’s in-app purchase software.

A page on Apple’s website says the Apple Video Partner Program has existed since 2016 and has 130 participants, including Disney+, HBO Max and the Canadian Broadcasting Corporation.

When the Premium Video Partner Program was first reported, Epic Games CEO Tim Sweeney told CNBC in response to the news, in a preview of its lawsuit: “Epic Games wholeheartedly supports smartphone platforms and their digital stores opening up to payment processing competition.”

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