1. (10 points). Analyze and explain at least five important reasons for why HBO decided to offer its new service HBO Now.
Note: Question 2 and Question 3 below are based on the idea of HBO Now cannibalizing its existing business with Comcast. Cannibalization is the phenomenon when a company’s new business does not generate new customers, but only acquires its existing customers from another source. In this case, cannibalization happens when a customer gives up an existing HBO subscription through Comcast in order to subscribe to HBO Now. Alternatively, a potential customer who would have anyway joined HBO through Comcast now decides to join HBO Now directly. In both cases, HBO Now will not generate additional customers or revenue for HBO.
2) (10 points). Analyze the economic and strategic impact of cannibalization on HBO. Some helpful numbers from the case are given below. Make any additional assumptions as needed (either supported by information/numbers given in the case, or otherwise supported by clear logical arguments).
a) Under the current model, HBO gets $7.77 per subscriber per month from Comcast (p.6).
b) HBO Now is priced at $15 per month, the same price a consumer pays to subscribe to HBO as part of his cable service.
3) (10 points). Analyze the economic and strategic impact of cannibalization on Comcast.
How should Comcast respond to HBO Now? Some helpful numbers from the case are given below. Make any additional assumptions as needed (either supported by information/numbers given in the case, or otherwise supported by clear logical arguments).
a) HBO’s penetration among cable subscribers ranged from 14% to 42% (p. 6), with an average of say 30%.
b) Comcast’s subscribers in the U.S. = 20 million (p.1)
4) (10 points). Analyze, from CBS’s viewpoint (both economic and strategic), the pros and cons of its OTT service “CBS All-Access.” Does it make sense for CBS to offer this service (analyze this question both from the viewpoint of CBS, the broadcast network, and its local station affiliates)?
5) (10 points). Bundling is the phenomenon when a business sells two or more products together with a combined sale price. Cable providers currently sell a bundle of channels in their subscription service. We have witnessed the unbundling of several industries, with music being a prominent example (e.g., instead of buying an entire album, we can now buy an individual song on iTunes). Analyze the pros and cons for Comcast to move to an unbundled business model. What would be your recommendation to Comcast on this matter?
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