Step 1 Turn to page 473 in your textbook and read the introduction to Case: Spectrum—The Spawn of Time Warner Cable and Charter Communications Navigates Challenges from Cord Cutting and Mobile Competition. Then, read the Background (page 475-491). When you reach Memos, read through the memos and use the attachments available online at www.mhhe.com/baye10e. Step 2 Select six (6) memos to respond to, providing the information requested in each within a single document. Your document must be exactly six (6) pages long, one page for each memo. Each page must be in memo format. When responding to the six memos you selected, be sure to identify which memos you are responding to throughout your document.

Memo Responses Student Name Institution Professor Name Course Date Memo Responses Memo 1 To: Regional Vice President, Tri-State Region From: Pricing Manager, Tri-State Region RE: Examination of Price Sensitivity and Potential Revenue for EPIX Potential revenue increase from price reduction. Using the given data, I calculated the total revenue at different price points to determine if lowering the price would increase revenue. Revenue is highest at $5.00, with 29,974 subscribers generating $149,870 monthly. Given the linearity in the drop-off of subscribers with increasing prices, the price elasticity of demand is significant. According to Baye et al. (2013), a lower price point seems beneficial, as the increased number of subscribers compensates for the reduced price per subscription. Optimal Price Point To maximize revenue, the optimal price appears to be $5.00. $5.00: 29,974 subscribers = $149,870, $6.00: 17,822 subscribers = $106,932, $7.00: 19,897 subscribers = $139,279, $9.75: 15,059 subscribers = $146,825 (current) By lowering the price to $5.00, the expected revenue increase is approximately $149,870 - $146,825 = $3,045 monthly, with a significant increase in subscriber base. Given the substantial rise in subscribers, this should counterbalance any negative impact from price cuts for existing customers. Memo 2 To: Vice President, Marketing From: Pricing Manager, Austin RE: Pricing Analysis in Response to Google Fiber Entry With Google Fiber entering the Austin market, a strategic pricing assessment is crucial to remaining competitive and profitable. A detailed cost analysis follows. Amortization cost. $550 million over 15 years at 6% interest = 6%* $550 million/12 = $2,750,000 million monthly. Cost per subscriber. Amortization (per subscriber/month) = $2,750,000 / 340,000 subscribers = $8.00 Program Fees = $41.50 Maintenance & Billing = $9.20 Total Cost per Subscriber = $8.00 + $41.50 + $9.20 = $58.70 As long as the price is above $58.70, we are covering the direct costs per subscriber. However, we also need to consider the fixed amortization cost as follows. Amortization Cost = $550 million / 15 years = $36.67 million per year = $36.67 million / 12 months = $3.06 million monthly If we lose all 340,000 subscribers, we still bear the full $3.06 million amortization cost. Revenue needed to cover just the amortization cost is as follows. = $3.06 million / 340,000 subscribers = $9 per subscriber (approximately) Therefore, the minimum viable price is the sum of the following. Direct Costs ($58.70) + Revenue to cover Amortization ($9) = $64.20 + $9 = $67.70 per subscriber Any price below $67.70 means we are likely losing money overall after covering both variable and fixed costs. So, a minimal profitable price that factors in all costs is around $67-$68 per subscriber. Below this level, it may make sense to exit the Austin market. A strategic price adjustment seems prudent to face intensifying competition from Google Fiber’s entry. However, indiscriminate price cuts could prove catastrophic. A judicious approach to balancing competitiveness and profitability is advisable. Prices should remain above the $67-$68 viability threshold to cover fixed and variable costs. Piatkowski (2012) states that, simultaneously, enhancing service offerings, leveraging loyalty programs, and targeted marketing highlighting the company’s strengths over rivals could fortify our market position. A multi-pronged strategy incorporating strategic pricing and superior value proposition is crucial to sustaining profitability amid Google’s disruption. Memo 3 To: Vice President, Strategy Group From: Junior Executive, Strategy Group RE: Porter’s 5 Forces Breakdown of the Cable Industry Outlined below is the strategic analysis of our business using Porter’s 5 Forces framework. Threat of new entrants. Many obstacles, such as capital investment in infrastructure, regulatory hurdles, and established brand loyalty, reduce threat levels. Bargaining power of suppliers. Content providers (TV networks) have significant power, and exclusive content deals increase dependency on a few suppliers. Bargaining power of buyers. Increasing price sensitivity and switching costs due to alternatives like streaming services and competitor bundles affect customer loyalty. Threat of substitutes. High, driven by streaming platforms, satellite services, and mobile internet options, and innova...