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Consumers Churn Less Than You May Think

With media platforms proliferating, consumers could be expected to jump around a lot. However, there's surprising stability in subscription media, despite growing choices.

As an example, cell phone operator Verizon Wireless cut its average monthly churn to 1.26 percent in 2005, down sharply from 2.52 percent in 2001. Those figures average both postpaid and prepaid mobile phone customers. Churn is a metric expressing turnover of subscribers as a percentage of the existing base, usually on a monthly basis but also quarterly or annually.

Kagan forecasts that subscriber churn in basic cable TV, which stood at 2.4 percent per month industrywide last year, will decline as bundling with high speed Internet and voice services fosters subscriber loyalty.

The overall trend to greater stability is a result of numerous factors, which vary by media sector. A consequence of intense competition is discounting, which reduces prices differences and therefore narrows competitive differences. To get low bundle rates, subscribers often must commit to service contracts, which tie them down (or, simply ask for a lower price, from the customer retention department).

Although lower churn is good news, it potentially may raise subscriber acquisition costs (SAC) since it means there's a relatively small pool of available subscribers up for grabs. DIRECTV � which is being more selective by focusing on big spenders � averaged $642 in SAC in 2005, while middle-market rival EchoStar's DISH Network weighed in at $688 in SAC. This is a per-capita metric in which the total marketing expense for gross additions is divided by net new subs (gross additions minus churned subscribers).

Regarding declining mobile phone churn, Kagan Research credits improved networks that mean fewer lost calls; a trend to add new features that reduces differences between carriers; and a wave of mergers.

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