DIRECTV, the leading satellite TV provider in the United States, experienced a huge second-quarter subscriber loss, with more than 130,000 households abandoning their satellite TV. This is bad news for the media giant, now merged with AT&T. But there is good news to go along with the bad: DIRECTV still showed a seven percent quarterly profit raise despite the subscriber loss.
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Moffett plied a unique formula that shows that while DirecTV is now in “secular decline” as far as customer numbers are concerned, the ” incremental lifetime value” of each subscriber is still growing. The formula accounts for revenue per customer, churn, programming costs and capital expenditures.
“DirecTV has been increasing incremental customer lifetime value over time, reflecting a combination of price increases and careful customer selection,” Moffett said.
“At DirecTV, higher gross margins have resulted in rising incremental lifetime values,” he added. “Today, a customer at DirecTV generates around $3,000 [over the lifetime of the customer relationship], up almost 20 percent over the past five years.”
What they mean by “careful customer selection” is that DIRECTV is more discerning in the customers the company targets, as well as those who pass the requirements for signup. DIRECTV customers are less likely to be delinquent on bills than many cable subscribers, and the value of each package per month brings in more money per customer, leading to a more profitable model.
Still, DIRECTV should not rest on its laurels. If the customer base continues its rapid decline, that could pass higher costs to current customers, leading them to cut the cord as well. Will this happen? Only time will tell.