We recently added the EPIX Movie Channels as part of a new tier of programming for our digital video subscribers. The EPIX channels are sold as an add-on package for $9.75 per month, but we
Memo 1
To: Pricing Manager, Tri-State Region
From: Regional Vice President, Tri-State Region
Re: Revenue from EPIX
We recently added the EPIX Movie Channels as part of a new tier of programming for our digital video subscribers. The EPIX channels are sold as an add-on package for $9.75 per month, but we would like to potentially increase our revenue from our subscriber base. Currently we have about 15,059 subscribers, generating monthly revenue of $146,823.
Some have suggested we should cut price, as customers tend to be fairly price sensitive for add-on packages. However, in this case, if we lower price for our new subscribers; we really need to cut it to all of our existing subscribers as well. I have some concerns that lowering price will be counter-productive.
The marketing department calculated some subscription levels at various price points in this region, and I need you to perform the analysis. Specifically, I want you to estimate the price sensitivity of customers at the current price. Please address the following questions: (1) If we lower the price, do you think this is likely to lead to higher revenue, and (2) how much potential revenue can we generate and how low should we go with our price?
Thanks for your help.
EPIX Demand and Cost
| 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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