DirecTV vs Comcast: Economic Analysis

Like millions of others, I was recently involved in the cable vs satellite TV debacle. I’ve never had satellite TV before, but a glossy ad from DirecTV was promoting a deal that could give me much more than what I was getting with the budget, local cable company I was using – and for less money.

Before I made the full-out change, however, I looked up the High Definition (HD) service competition (at least for my area): Comcast. My basis of comparison is was one HD Digital Video Recorder (DVR), one Standard Definition (SD) receiver (not a DVR), and no non-free movie channels. Here are the two offers:

Clearly the base cashflow favored DirecTV, as both the introductory rate and base rate were lower. Throw in Comcast’s installation fee and DirecTV’s $100 promotion, and the scales tip even further in that direction. Here is the potential three-year cashflow, both in money-of-the-day terms, at adjusted at a 10% discount rate:¹

The contract, however, made things a little more complicated. With DirecTV, if I cancelled service before 2 years were up, I would have to pay $20 for each month I was short. So, quiting after a year, for example, would incur a $240 fee (after 18 months – a $120 fee, etc.), while quiting after two years would have no fee.

So, the question is: When does the DirecTV cancelation fee become low enough that the present value of the cash flow is less than that of the higher base prices of Comcast? As it turns out, about nine months:

And, since I expect to be on-board longer than that … we have a winner! (And here’s the data, if you’re interested.)

Notes

¹ I use 10% because that’s about the return I get with my LendingClub investments.