Valuing Subscription-Based Businesses Using Publicly Disclosed Customer Data

McCarthy, D, Fader, P S and Hardie, B G S (2017) Valuing Subscription-Based Businesses Using Publicly Disclosed Customer Data. Journal of Marketing, 81 (1). pp. 17-35. ISSN 0022-2429

Abstract

The growth of subscription-based commerce has seen a change in the types of data firms report to external shareholders. More than ever before, companies are discussing and disclosing data on the number of customers acquired and lost, customer lifetime value, and more. This has fueled an increasing interest in linking the value of a firm’s customers to the overall value of
the firm, with the term customer-based corporate valuation being using to describe such efforts.
While a number of researchers in the fields of marketing and accounting have explored this idea, their underlying models of customer acquisition and retention do not adequately reflect the empirical realities associated with these behaviors, and the associated valuation models do not live up to the standards of finance professionals. We develop a framework for valuing subscription-based firms that addresses both issues, and apply it to data from Dish Network and Sirius XM Holdings.