Netflix’s recent price increases may have scared away low-income consumers: New data released by Earnin, a service that targets this group of consumers with cash advances, shows that growth among low-income users has stalled while other paid streaming services have continued to add new users.
The percentage of Earnin customers who subscribe to Netflix has been flat for some time, the company’s economist Peter Griffin wrote in a blog post Tuesday. That’s despite the fact that the overall usage of paid streaming services has grown notably among Earnin users, with both YouTube and Hulu adding paid users.
That trend has been particularly pronounced ever since Netflix’s most recent price increase. The streaming service raised its prices at the end of 2017, bumping the monthly charge for its HD tier from $9.99 to $10.99. The price for the company’s family plan, which includes the ability to stream to up to four devices and access streams in 4K HDR, increased from $11.99 to $13.99.
“When Netflix raised its prices over six months in 2016, market share (in total dollars) grew accordingly,” Griffin wrote in a blog post Tuesday. “In 2018, the increase deterred new subscribers living paycheck to paycheck from joining the platform while Hulu and YouTube grew memberships in that period by 4.5% and 15% respectively.”
Earnin has been able to gather this type of data because of the fact that it has access to its members’ banking transactions as a way to verify their monthly income. That way, the company was also able to learn that one in eight Earnin users has had an overdraft fee because of a subscription service in the past year.
Following recent banking regulations, banks have to reject charges rather than bill customers for overdraft fees. However, there’s a loophole: “Unfortunately, recurring payments were excluded, allowing streaming services bills to routinely trigger fees,” Griffin explained. “This exception is also compounded by the common practice of fee maximization. As long as a bank includes it in their fine print, they can reorder transactions to maximize the likelihood that recurring transactions trigger overdraft fees.”
In the end, low-income consumers actually pay more for streaming services than consumers who don’t have to fear overdraft fees. “Streaming services cost about $0.80 more per month once you account for the chance they trigger an overdraft,” said Griffin. “Over the past 12 months, this additional cost has averaged $0.78, $0.83, $0.79 more a month for Netflix, Hulu, and YouTube, respectively.”
It’s worth noting that Earnin’s data comes with a few caveats. First of all, the service is based on an app, which means that Earnin’s customers aren’t necessarily representative of all lower-income consumers.
Netflix has also for some time offered alternative payment methods, including gift cards that can be bought in retail stores and that likely appeal more to consumers who try to avoid overdraft fees. A Netflix spokesperson declined to comment on any trends in the usage of prepaid cards.
Still, the data is interesting, even just taken as anecdotal evidence for price sensitivity among low-income consumers. And it also goes to show why so many companies continue to invest in ad-supported streaming services. After all, you’ll never have to pay an overdraft fee for something that’s free.