Assignment
The firm Threadflix provides a monthly subscription service of online streaming of movies and TV shows. Threadflix offers two subscription plans: standalone service which costs £7 per month and allows only one device to stream simultaneously, and the family service which costs £15 per month and allows to stream from multiple devices at the same time. Threadflix currently has 5,000,000 customers globally, of which 80% have a standalone subscription. Historical data shows that, in an average month, 8% of the customers with standalone service unsubscribe to the service. On the other hand, only 2% of the family subscription customers unsubscribe each month. (It is believed that these differences in churn rates are driven by multiple members of the family may be engaged in a Threadflix TV show.) Assuming that the profit margin for the firm (for all subscribers) is 30%, answer the following questions:
I. How much more value the firm obtains from one customer with family subscription vs. one customer with standalone subscription?
II. Which segment of customers (standalone or family) represents the highest proportion of the total value of the firm's customer base?
III. Threadflix is interested in attracting new customers, for which is considering start producing new shows and movies that differ notably from their current catalogue. Firm's forecast indicates that the production of new and different content will attract 1,000,000 new subscriptions, in the same proportion of standalone and family as they currently have. Assuming, this new content does not change existing customers' retention rates, how much is the maximum budget Threadflix should spend to produce this new content?
IV. Another option Threadflix is considering is to renew new seasons for their existing shows for £40,000,000. The firm forecast that this action will decrease standalone customers unsubscribing behavior from 8% to 4%. Considering it does not affect how family subscribers behave, what is the net increase in value of this strategy?
V. Finally, assuming that the production of new content (as discussed in part c)) costs £30,000,000; which strategy, new content production (part c) or renewal of existing shows (part d), is best for Threadflix? Why?