Memo $4$

$\backslash$table$[[$To:$,$Pricing Manager, Tri$-$State Region$],[$From:$,$Regional Vice President, Tri$-$State Region$],[$Re:$,$Revenue from EPIX$]]$

As you are aware, 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 $$9\mathrm{.}75$ per month, but we would like to potentially increase our contribution margin from our subscriber base. Currently we have $15,059$ subscribers, generating monthly revenue of $$146,823.$

In an earlier study, our marketing department generated data on sales quantities at various price levels. In addition, we have included the licensing cost as well as regional expenses.

Please provide a recommendation of the profit$-$maximizing price, and how much our profits will increase if we adjust price to the recommended level. Also, please note whether this will impact our revenue.

Attachment: Epix.xls$\backslash$table$[[$Price$,$Number of Subscribers $($Thousands$),$Cost of License Fees $($Thousands$),$Divisional Sales, General and Administrative Costs $($Thousands$)],[$$$5\mathrm{.}00,29\mathrm{.}974,$$$,134\mathrm{.}883,$$$,14\mathrm{.}50],[$$$5\mathrm{.}50,29\mathrm{.}256,$$$,131\mathrm{.}651,$$$,14\mathrm{.}50],[$$$6\mathrm{.}00,17\mathrm{.}822,$$$,80\mathrm{.}199,$$$,14\mathrm{.}50],[$$$6\mathrm{.}50,22\mathrm{.}657,$$$,101\mathrm{.}956,$$$,14\mathrm{.}50],[$$$7\mathrm{.}00,19\mathrm{.}897,$$$,89\mathrm{.}537,$$$,14\mathrm{.}50],[$$$7\mathrm{.}50,16\mathrm{.}671,$$$,75\mathrm{.}017,$$$,14\mathrm{.}50],[$$$8\mathrm{.}00,20\mathrm{.}492,$$$,92\mathrm{.}213,$$$,14\mathrm{.}50],[$$$8\mathrm{.}50,20\mathrm{.}000,$$$,89\mathrm{.}998,$$$,14\mathrm{.}50],[$$$9\mathrm{.}00,19\mathrm{.}760,$$$,88\mathrm{.}920,$$$,14\mathrm{.}50],[$$$9\mathrm{.}50,17\mathrm{.}123,$$$,77\mathrm{.}053,$$$,14\mathrm{.}50],[$$$10\mathrm{.}00,12\mathrm{.}644,$$$,56\mathrm{.}896,$$$,14\mathrm{.}50],[$$$10\mathrm{.}50,12\mathrm{.}785,$$$,57\mathrm{.}531,$$$,14\mathrm{.}50],[$$$11\mathrm{.}00,12\mathrm{.}216,$$$,54\mathrm{.}974,$$$,14\mathrm{.}50],[$$$11\mathrm{.}50,13\mathrm{.}246,$$$,59\mathrm{.}608,$$$,14\mathrm{.}50],[$$$12\mathrm{.}00,8\mathrm{.}637,$$$,38\mathrm{.}867,$$$,14\mathrm{.}50],[$$$12\mathrm{.}50,10\mathrm{.}595,$$$,47\mathrm{.}678,$$$,14\mathrm{.}50],[$$$13\mathrm{.}00,5\mathrm{.}857,$$$,26\mathrm{.}357,$$$,14\mathrm{.}50],[$$$13\mathrm{.}50,2\mathrm{.}615,$$$,11\mathrm{.}768,$$$,14\mathrm{.}50],[$$$14\mathrm{.}00,2\mathrm{.}739,$$$,12\mathrm{.}326,$$$,14\mathrm{.}50],[$$$14\mathrm{.}50,5\mathrm{.}291,$$$,23\mathrm{.}809,$$$,14\mathrm{.}50],[$$$15\mathrm{.}00,3\mathrm{.}051,$$$,13\mathrm{.}730,$$$,14\mathrm{.}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.