Apple has unveiled an Internet radio service called iTunes Radio and said the service will personalize listeners'
Question:
Apple has unveiled an Internet radio service called iTunes Radio and said the service will personalize listeners' music based on what they've listened to and what they've purchased on iTunes. To compete with Pandora and other similar services, they are offering a commercial-free version of the service that costs $25 per year. Due to licensing rights and data usage, the cost to Apple is about $0.02 per hour per user. Based on test market results, the average subscriber will use iTunes Radio 40 hours per month. They expect that after signing up, they will remain a customer for an average of 3 years. Assume acquisition costs are negligible. To help promote iTunes Radio, Apple is considering hosting a concert, featuring some of their customers' favorite bands. They plan to spend $5 million on the concert (which includes big name stars, the venue, and other expenses), plus another $250,000 to promote the concert. They will charge $50 for tickets. The venue holds 100,000 people, and they expect the concert to sell out. They expect that an additional 2 million people will hear about the concert. Of the people who attend the concert, they expect a 30% conversion rate (i.e., people who will become iTunes Radio subscribers). Of those who hear about the concert but do not attend, they expect a 1% conversion rate.
A. How many additional subscribers, in total, should Apple expect due to the concert? Show your work!
B. Is it economically justified for apple to host the concert as planned? why or why not?
C. What is the lifetime value of each customer who subscribes for iTunes Radio? Show all
your work!