Drawing from the information in the Time Warner Case, located in the previous module, the company is thinking of adding three networks to its basic cable lineup: Bravo, ESPNews, and MTV2. Each of these networks would charge TW programming fees on a per subscriber basis, as follows:
Bravo - 8 cents per subscriber per month
ESPNews - 10 cents per subscriber per month
MTV2 - 7.5 cents per subscriber per month
To offset a portion of these fees, each network would allow TW to sell some local advertising time on their networks. Based on current network ratings, TW's advertising department estimates that the monthly advertising revenues earned would amount to $1,200 on Bravo, $1,500 on ESPNews, and $1,200 on MTV2. Approximately 46% of the 110,000 customers in the Greater Boston area market currently subscribes to TW's basic services. Anytime the basic channel lineup is adjusted, there is a shift in the number of customers who take the basic cable package. TW tends to lose a few channel loyal customers anytime it drops a channel, and likewise, gain a new group when a channel is added. TW's marketing department has provided estimates of the number of loyal customers for each channel. This represents an estimate of the number of cable customers TW will lose if it drops a particular network. Likewise, it also provides an estimate of the number TW can gain by adding a new channel. Currently, TW does not have the capacity to add new channels to its basic lineup without dropping existing channels. TW's marketing department estimates the following increases in subscribers by adding these new channels:
Bravo - 150, ESPNews - 300, and MTV2 - 225.
Its current pricing (not including taxes) for the basic package is $34.99 per month. Its programming fees for the basic package total $14.55 per month.
The current basic cable lineup is attached. The list only includes networks that could feasibly be replaced. It excludes channels that must be retained due to governmental regulation (local access channels, etc.) as well as broadcast networks. Using this information in the Excel spreadsheet labeled Networks, please make a recommendation for whether TW should add any of the proposed new networks to its basic package. Please defend you decision.