By Jason Snell
September 12, 2019 11:25 AM PT
Will free Apple TV+ subscriptions count as Services revenue?
Note: This story has not been updated for several years.
So Apple is going to give a free year of Apple TV+ to anyone who buys new a Apple device capable of playing it. It’s a smart move to build a subscriber list while its offerings are limited, and all of those free family subscriptions will convert to $4.99/month subscriptions when the year is up.
But if the popular narrative is that Apple is launching Apple TV+ to boost its Services revenue line, does giving away all of these free subscriptions mean that Apple won’t see that benefit for a year?
I am not an accountant, but I want to point to something Apple did late last year, namely change how it accounts for services bundled with its hardware:
Starting in 2019, in connection with the adoption of the new revenue accounting standard, Apple will classify the amortization of the deferred value of Maps, Siri and free iCloud services, which are bundled in the sales price of iPhone, iPad, Mac and certain other products, in Services net sales. Historically, Apple classified the amortization of these amounts in Product net sales consistent with its management reporting framework. As a result, the 2018 net sales information has been reclassified to conform to the 2019 presentation.
What this means is that Apple now considers Maps, Siri, and the meager 5GB of free iCloud storage everyone gets with their devices as services, and takes a small amount of money from the sales of Apple hardware and allocates them into the services revenue line.
While the Apple TV+ bundle is not entirely analogous—you will have to sign up for the free year, while these other services are used without any intervention—it seems likely to me that Apple will pull a little revenue out of the hardware sales figures and toss it into the Services pile every time someone signs up for a free year of Apple TV+.
If you appreciate articles like this one, support us by becoming a Six Colors subscriber. Subscribers get access to an exclusive podcast, members-only stories, and a special community.