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Apple has fallen squarely into the sights of regulators in China again, this time over live streaming apps available for download on the Chinese version of its App Store.
Beijing city’s Cyberspace Administration this week publicly requested that Apple more carefully screen such live streaming apps to ensure they were in compliance with strict regulations governing online content. The regulating body expressed concerns that three live streaming services—Toutiao, Huajiao and Huoshanzhibo—available in the App Store did not comply with rules regarding monitoring live streaming content and identifying users, among other issues.
The regulatory request complicates Apple’s already complex position in China, a market central to the company’s ability to continue to generate strong profits—there will be 772 million internet users in China this year, eMarketer estimates.
Apple is one of the rare large Western technology-focused companies that has been able to walk a fine line between providing products and services to Chinese consumers, while simultaneously remaining on the right side of government content regulators. Internet services giants Facebook and Google have thus far been unable to reproduce that feat—both are effectively banned from the country. And Netflix withdrew from the market in 2016, citing its inability to overcome substantial regulatory hurdles.
Apple’s more successful efforts have not been without blowback from Western entities critical of China’s history of censorship and quashing of domestic political dissent. In January, Apple endured criticism from those quarters after it was revealed the company had removed two news apps published by The New York Times from its App Store in China. Apple was also forced to end its iTunes Movies and iBooks services in 2016 at the behest of regulators.
Apple’s position in China has also been imperiled by increased competition from domestic smartphone manufacturers like Oppo and Vivo. These companies have gained ground against the iPhone by providing many of the flagship smartphone’s features at a much lower cost. According to Counterpoint Technology Market Research, Apple’s share of smartphones shipped in China fell from 14.3% in 2015 to 10.4% in 2016.
Apple is hoping to rejuvenate its fortunes this year with the launch of the iPhone 8, a device that is expected to undergo a significant design overhaul. But it remains to be seen if large numbers of consumers in China are still willing to fork over inflated sums for the iPhone, a product that may be unable to offer a feature set that differentiates itself significantly from cheaper alternatives.
That makes Apple’s service-generated revenues—such as those from apps—increasingly important to the company’s bottom line. Just as it does everywhere else, Apple takes a hefty 30% cut from the sale of apps on its App Store in China.
This type of service has already translated to a significant revenue stream for the company. According to App Annie, iOS App Store revenues crossed the $2 billion mark in China in Q4 2016.
Live streaming apps—which have seen an explosion of popularity in China in recent months—are unlikely to contribute to Apple’s revenues in this way. Most, if not all, of them are offered for free by platforms looking to build out their user bases and then monetize by capturing a slice of in-app payments made to content providers by viewers.
However, the apps have drawn close regulatory scrutiny after some incidents in which platforms featured pornographic content or other material deemed inappropriate for public dissemination. That’s likely what drew the attention of the government censors in Beijing.
If these regulators were to refocus their concerns on paid apps, that could spell danger for Apple. To keep its somewhat tenuous pipeline to consumers in China open, the company will have to continue to make sure it appeases the country’s army of bureaucrats.
Paid media advertising outlays worldwide will increase 7.3% in 2017 to $583.91 billion. Growth will be roughly on par with previous estimates, and spending will rise at a steady pace throughout the forecast period, driven by increased investments in digital and mobile ads.
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