Question

StarHub: English Premier League(c) Some of the most ardent fans of Arsenal, Manchester United, and Liverpool live far from Highbury, Old Trafford, and Anfield, in Hong Kong and Singapore. Until the 2006-07 season, ESPN Star Sports held the broadcast rights to the English Premier League (EPL) for Singapore. Then, in late 2006, StarHub bid an estimated US$160 million to beat incumbent ESPN Star Sports and telecommunications provider, SingTel, to win the rights for the next three seasons. The winning bid was reputedly several times the amount that ESPN Star Sports had paid for the previous rights. The Singapore government prohibits the reception of satellite TV. Integrated telecommunications and cable TV provider, StarHub, is the only provider of cable TV in Singapore. The government did offer a second cable TV license, but no one applied. In 2007, StarHub’s major source of revenues was mobile services, which accounted for 52% of revenues, with cable TV, broadband, fixed network services, and equipment sales accounting for 17%, 12%, 14%, and 5% respectively. In 2001, StarHub unbundled the basic cable TV package into thematic basic packages and reduced the price from $32.95 to $20 a month. Subsequently, it added new channels to the various basic packages without raising prices. The new channels included CCTV-9, Discovery Travel & Living and STAR Chinese Channel. In 2004, StarHub raised the price of the sports package by $7 to $15 a month. The sports package included ESPN Star Sports. Typically, cable TV operators pay content providers such as ESPN a royalty based on the number of subscribers to the content. Following its acquisition of the English Premier League rights, StarHub announced price increases. It raised the price of basic packages by $4 to $24 a month with effect from July 11. It decided to broadcast the EPL on its own sports channel, which was included in the sports package. It raised the price of the sports package by $10 to $25 a month, with effect from October. Mr Thomas Ee, Senior Vice President of Cable, Fixed & IP Services, justified the prices increases, “Most pay-TV operators around the world increase prices periodically and StarHub has not done so despite a steady rise in costs over the years”. In 2007, StarHub’s cable TV revenue grew by 9% from S$313 million to S$342 million. ARPU (average revenue per user) rose by 6% from S$48 to S$51, while the subscriber base increased by 4% to 504,000 as at end December 2007. Relative to the number of households in Singapore, the subscriber base amounted to a 45% penetration rate.

a) Identify changes in demand and costs (fixed and marginal costs relative the number of subscribers) arising from StarHub’s acquisition of the EPL rights.

b) Discuss characteristics of StarHub’s demand, specifically discuss the fact that as prices went up so did the number of subscribers. (Hint: does this violate the law of demand? If not, why?)

c) Which of the changes in (a) & (b) would be relevant to StarHub’s pricing of cable TV services?

d) What was the market structure in which StarHub’s cable TV product was operating in? Specify the characteristics that led you to that assessment. Are there barriers to entry? If so, what are they?

Answer 1

Ans:

a) StarHub raised the price of the sports package by $7 to $15 a month. The sports package included ESPN Star Sports. Typically, cable TV operators pay content providers such as ESPN a royalty based on the number of subscribers to the content.StarHub

announced price increases. It raised the price of basic packages by $4 to $24 a

month with effect from July 11. It decided to broadcast the EPL on its own sports

channel, which was included in the sports package. It raised the price of the

sports package by $10 to $25 a month, with effect from October.these are the changes in the demand and costa...first they are done with the mobiles and other services..then creating a buzz in tv marketing.thy extended their services to cable tv by the demand...

b) we know that the StarHub�s major source of revenues was mobile services, which

accounted for 52% of revenues, with cable TV, broadband, fixed network

services, and equipment sales accounting for 17%, 12%, 14%, and 5%

respectively. In 2001, StarHub unbundled the basic cable TV package into thematic

basic packages and reduced the price from $32.95 to $20 a month.

Subsequently, it added new channels to the various basic packages without

raising prices. The new channels included CCTV-9, Discovery Travel & Living

and STAR Chinese Channel. In 2004, StarHub raised the price of the sports package by $7 to $15 a month. The sports package included ESPN Star Sports. Typically, cable TV operators pay content providers such as ESPN a royalty based on the number of subscribers to the content.the above factors indirectly are relevant to the starhub's pricing of cable tv's

c)StarHub announced price increases. It raised the price of basic packages by $4 to $24 a month with effect from July 11. It decided to broadcast the EPL on its own sports channel, which was included in the sports package. raised the price of the sports package by $10 to $25 a month, with effect from October. Mr Thomas Ee, Senior Vice President of Cable, Fixed & IP Services,justified the prices increases

StarHub�s cable TV revenue grew by 9% from S$313 million to

S$342 million. ARPU (average revenue per user) rose by 6% from S$48 to S$51,

while the subscriber base increased by 4% to 504,000 as at end December 2007.

(d)

Relative to the number of households in Singapore, the subscriber base

amounted to a 45% penetration rate. so,in the above way by increasing the cost of basic packages it adjusted the cable tv pricing..