Star Stream is a subscription-based video streaming service. Subscribers pay $120 per year for the service. Star Stream licenses and develops content for its subscribers. In addition, Star Stream leases servers to hold this content. These costs are not variable to the number of subscribers, but must be incurred regardless of the subscriber base. In addition, Star Stream compensates telecommunication companies for bandwidth so that Star Stream customers receive fast streaming services. These costs are variable to the number of subscribers. These and other costs are as follows:
Server lease costs per year...........................$ 100,000,000
Content costs per year.................................2,000,000,000
Fixed operating costs per year..........................900,000,000
Bandwidth costs per subscriber per year..........................15
Variable operating costs per subscriber per year.................25
A. Determine the break-even number of subscribers.
B. Assume Star Stream planned to increase available programming and thus increase the annual content costs to $2,600,000,000. What impact would this change have on the break-even number of subscribers?
C. Assume the same content cost scenario in (B). How much would the annual subscription need to change in order to maintain the same break-even as in (A)?