(Bloomberg)—China has shut down Apple Inc.’s iTunes Movies and iBooks services, serving notice that the world’s most valuable company is no longer immune to the long reach of Beijing’s powerful regulators.
For years, Apple was one of the few Western companies allowed to grow almost unimpeded in China. The company has been selling computers and iPhones there for years and has managed to introduce other products, including the App Store and the Apple Pay mobile payments service without interference. Six months ago, Beijing allowed Apple to roll out iTunes Movies and iBooks. Apple is No. 2 in the newly released Internet Retailer 2016 Top 500 Guide and No. 11 in the 2016 China 500.
Then, last week, China’s State Administration of Press, Publication, Radio, Film and Television ordered the services shuttered, according to a person familiar with the situation. The order means Chinese consumers can’t access some of the services Apple uses to keep them wedded to its hardware. The company has become increasingly dependent on China, its second-largest market, as iPhone sales growth slows at home.
Reasons for the shutdown weren’t clear, but it’s possible China’s government took issue with content in Apple’s entertainment services. “There is a bit of a cat-and-mouse game between the tech and content providers and what’s acceptable and not acceptable in China,” said Brian Blau, a Gartner analyst.
In February, the regulator and the Ministry of Industry and Information Technology released new rules governing publication of virtually all types of Internet content in China. The regulations kicked in last month.
Apple has operated services such as the App Store in China for years and has a team that responds to take-down notices from the government when unacceptable content is pinpointed, said a person familiar with the operation.
John Butler, an analyst at Bloomberg Intelligence, suspects the order won’t lead to broader curbs on Apple’s China business.
“It’s probably going to be limited to these services, and there are ways Apple can pull consumers into its ecosystem other than iBooks and iTunes Movies,” he said. “It’s another example of the Chinese government policing content, and I don’t think it’s aimed at Apple. Apple is a hardware company and its lifeblood is not content.”
In a statement, Apple said: “We hope to make books and movies available again to our customers in China as soon as possible.”
While the effected services aren’t big pieces of Apple’s business, the shutdown signals a change in behavior by the Chinese government toward the world’s largest technology company.
Apple has largely avoided the kind of interference that has plagued other American firms. Google’s web search and Facebook’s social network are inaccessible in mainland China. Last year, Qualcomm Inc., the world’s largest maker of semiconductors for smartphones, paid a $975 million fine and agreed to charge Chinese companies a lower royalty rate in order to resolve an antitrust investigation by the Chinese government. Microsoft Corp. (No. 290 in the China 500), Cisco Systems Inc. and International Business Machines Corp. also have faced scrutiny from regulators in China.
Many analysts have interpreted the crackdown on U.S. firms as part of the Chinese government’s bid to build and support domestic companies, including Huawei Technologies Co., Tencent Holdings Ltd. and Xiaomi Corp. (No. 3)
Staying in China’s good graces is key for Apple’s business, which increasingly counts on sales in the country to drive growth. For the three months ended December, revenue in Greater China, which includes Hong Kong and Taiwan, rose 14% to $18.4 billion. CEO Tim Cook has pledged to continue investing despite an economic slowdown. In China, Apple was the third-largest smartphone vendor in the December quarter with 12.5% of shipments, according to researcher Canalys. That trailed Huawei and Xiaomi, who each had about 15%.