Question

At the end of the first quarter 2019, AT&T raised its prices for its TV subscription services (DirectTV and U-verse) by 3%.

In the second quarter of 2019, AT&T lost almost 1 million TV subscribers bringing its total down to 21.6 million subscribers.   This was a 5% decrease in the number of subscribers.

1)     Assuming everything else held constant, what do you think happened to AT&T’s revenues from TV subscription services? Explain why.

2)     Why do you think AT&T’s revenues changed negatively or positively, per your answer to part 1)?

Or what is it about TV subscription industry which caused revenues to go up or down for AT&T?

Answer 1

ANS1) AT&T's revenue from subscription would have declined as according to the law of demand and supply , everything held constant , the demand for a good or service would fall with respect to a rise in the price of the good or service. For example lets assume that the price of a subscription is $100 and it has 22.6 million subscribers (21.6+1 according to the question), its revenues are 2260 million. Now that the price has risen by $3 (3% of $100 =$3), and there are 21.6 million subscribers, the total revenue is 2224.8 million. hence there is a fall in total revenue.

ANS2) the TV subscription industry is an industry where every service has a number of close substitutes and hence with an increase in price of one service, with the price of the other substitute services held constant, the demand for this service would fall and customers would start moving to the substitute services.