With the overall U.S. satellite TV business losing 214,000 customers in the second quarter -- and losing pay-TV market share to cable for the very first time -- MoffettNathanson analyst Craig Moffett says the sector is now officially a mature business that is no longer growing.
But with DirecTV (NYSE: T) actually showing a 7 percent rise in quarterly profit despite a huge second-quarter subscriber loss of 133,000, can it really be said that the company has stopped growing?
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."
For Dish Network (NASDAQ: DISH), lifetime customer value has remained "relatively stable," Moffett said.
The metrics are notable in a pay-TV industry in which one of the key engines of customer growth -- satellite -- has lapsed into decline.
Moffett concluded, however, that the increasing value of each customer is not enough to offset shrinking customer bases.
"While customer lifetime value remains solidly positive, economic value creation (the product of incremental customer lifetime value and net additions) is approaching zero for DirecTV and is in solidly negative territory for Dish," he said.
- read this MoffettNathanson report (sub. req.)
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