a. Triplecast was NBC’s and Cablevision’s joint venture to provide pay-per-view cable coverage of the 1992 Summer Olympics in Barcelona. Based on extensive surveys of potential demand, the partners hoped to raise $250 million in revenue by attracting some 2 million subscribers for three channels of nonstop Olympics coverage over 15 days. NBC set the average package price at $125 for complete coverage and offered a separate price of $29.95 per day. However, as the games began, fewer than 400,000 homes had subscribed.
i. In general, what goal should NBC follow in setting its program prices? Explain.
ii. After experiencing the unexpectedly lukewarm response prior to the games, what strategy would you recommend that NBC pursue?
b. In 1997, America Online (AOL) overhauled its pricing of Internet access. Formerly, subscribers paid a monthly fee of $9.95 (good for a limited number of access hours) and paid an additional fee for each hour exceeding the limit. In a bid to increase its customer base, AOL offered a new plan allowing unlimited access at a fixed monthly fee of $19.95. (The company estimated that the new plan would deliver a cheaper effective rate per hour for the vast majority of its current customers.)
i. In terms of impact on revenue, what are the pros and cons of AOL’s unlimited access pricing plan?
ii. What might the cost consequences be?