Time Warner Cable Memo #1

We recently added the EPIX Movie Channels as part of a new tier 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.

A B C D E F G H Divisional Sales, Number of Cost of License General and Price Subscribers Fees Administrative (Thousands) (Thousands) 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 4 89.537 14.50 $7.50 16.671 $ 75.017 14.50 $8.00 20.492 $ 92.2139 14.50 $8.50 20.000 $ 89.998 14.50 10 $9.00 19.760 $ 88.920 14.50 11 $9.50 17.123 $ 77.053 14.50 12 $10.00 12.644 56.896 14.50 13 $10.50 12.785 $ 57.531 14.50 14 $11.00 12.216 54.974 14.50 15 $11.50 13 246 $ 59.608 14.50 16 $12.00 8.637 38.867 14.50 17 $12 50 10.595 47.678 14.50 18 $13.00 5.857 $ 26.357 14.50 19 $13.50 2.615 $ 11.768 $ 14.50 20 $14.00 2.739 $ 12.326 14.50 21 $14.50 5.291 $ 23.809 14.50 22 $15.00 3.051 $ 13.730 $ 14.50 23 24 25 26 27 28 29 30 Estimates of market penetration in the Tri-State Region based on 31 different price levels. 32 33 License fees represent the fees that we must pay to Epix for the 34 rights to re-transmit their channels. Fees are based on the 35 number of subscribers. 36 37