Here's proof that a big source of Apple's App Store growth tanked, probably thanks to Netflix

Reuters

Apple CEO Tim Cook.

• Apple saw a big slowdown in revenue from entertainment apps in the App Store in March.
• That's according to Morgan Stanley, which issued a note saying a slowdown in an important engine of App Store revenue was worth keeping an eye on.
• This comes after Netflix pulled iTunes billing, depriving Apple of up to $256 billion in App Store revenue.
• Apple is currently trying to position itself as a service as well as a hardware business, that can charge people for access to music streaming, films, TV shows, and news.
• Visit Business Insider's homepage for more stories.

When Apple CEO Tim Cook walked onstage last week to introduce its streaming TV service, Apple TV+, it actualised a major shift in the company's thinking.

Apple will still be the company that sells you the iPhone, iPad, and Mac, but it also wants to transform itself into a digital services company that charges you for content like cloud storage, music streaming, news, and access to TV shows and movies.

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With fewer people regularly buying a new iPhone then, Wall Street is keeping a close eye on how Apple's new media businesses are coming along. And the picture is a little mixed.

A Morgan Stanley note sent to clients this week examines how much money Apple made from entertainment apps on the App Store. That category includes apps such as Netflix, Hulu, Amazon Prime, and HBO Go, but doesn't include music streaming services. It's a major revenue driver for Apple, because it can take up to 30% of subscription fees for those apps.

Read more: Apple made $156 million from the rival music streaming service trying to tear up its app business

And Morgan Stanley found that after years of average quarterly growth of 104%, things are slowing right down. Revenue from entertainment apps grew just 26% year on year in March. In other words, Apple is still growing its entertainment revenue, but not as rapid a pace.

Here's chart, where you can see the dropoff:

Morgan Stanley

Analysts suggest that this is the Netflix effect, after the streaming service decided to bypass Apple's billing rules, which mean it has to hand over up to 30% of people's subscription fees. Netflix now redirects new iPhone and iPad users to its own site to set up billing there, rather than through the App Store.

According to figures provided by Sensor Tower, which also underpin the Morgan Stanley research, Netflix provided Apple with as much as $256 billion in revenue last year. It was Apple's highest grossing app in any category, so it makes sense that its billing changes would make a severe dent in Apple's entertainment revenue.

The negative for Apple is that entertainment is its second-biggest category on the App Store, behind gaming.

As the bank's analysts wrote: "Entertainment is a category to keep our eye on after a significant deceleration. Entertainment (which does not include music) is the second largest App Store category."

They added that the impact is still "relatively small" though, because they calculated Apple only lost out on around $33 million in revenue in March, equivalent to 0.09% of total App Store revenue.