(1) in whether lowering the price will yield higher revenues, and (2) in an estimate of the maximum monthly revenues we can achieve through this channel
Memo 1
To:
Pricing Manager, Region 1
From: Regional Manager, Region 1 Cable System
Re:
Revenue from STARZ
We recently added the STAR Network to our premium cable tier.
Currently, 852 of our basic service subscribers purchase this service.
At the current price of $10.50, our revenues from this new channel are
$8,946 per month.
As you know, our penetration rate for STARZ is not as high as we
expected. Compared with the other two pay services we offer (HBO
and Showtime), the number of subscribers for STAR is still rather low.
Some of our customers have indicated that the main reason they
haven't signed up is the price.
To boost revenues, I am thinking that we might want to offer a
promotional price for STARZ starting in July. Since this offer will be part
of our summer promotion plan and will be well publicized, the same
deal has to be offered to our existing subscribers as well. My concern
is that the additional subscriptions generated by the lower price may
not fully offset the revenues lost from our existing base of subscribers.
The marketing department provided the attached data on the demand
and costs for this channel in our Region 1 service area. Please
evaluate our current pricing strategy for STAR based on these data.
I am particularly interested (1) in whether lowering the price will yield
higher revenues, and (2) in an estimate of the maximum monthly
revenues we can achieve through this channel
| Price | Number of Subscribers (Thousands) | Cost of License Fees (Thousands) | Divisional Sales, General and Administrative Costs (Thousands) |
| $5.00 | 29.974 | $134.883 | $14.50 |
| $5.50 | 29.256 | $131.651 | $14.50 |
| $6.00 | 17.822 | $80.199 | $14.50 |
| $6.50 | 22.657 | $101.956 | $14.50 |
| $7.00 | 19.897 | $89.537 | $14.50 |
| $7.50 | 16.671 | $75.017 | $14.50 |
| $8.00 | 20.492 | $92.213 | $14.50 |
| $8.50 | 20.000 | $89.998 | $14.50 |
| $9.00 | 19.760 | $88.920 | $14.50 |
| $9.50 | 17.123 | $77.053 | $14.50 |
| $10.00 | 12.644 | $56.896 | $14.50 |
| $10.50 | 12.785 | $57.531 | $14.50 |
| $11.00 | 12.216 | $54.974 | $14.50 |
| $11.50 | 13.246 | $59.608 | $14.50 |
| $12.00 | 8.637 | $38.867 | $14.50 |
| $12.50 | 10.595 | $47.678 | $14.50 |
| $13.00 | 5.857 | $26.357 | $14.50 |
| $13.50 | 2.615 | $11.768 | $14.50 |
| $14.00 | 2.739 | $12.326 | $14.50 |
| $14.50 | 5.291 | $23.809 | $14.50 |
| $15.00 | 3.051 | $13.730 | $14.50 |
Estimates of market penetration in the Tri-State Region based on different price levels. License fees represent the fees that we must pay to Epix for the rights to re-transmit their channels. Fees are based on the number of subscribers.
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