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7th edition

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SideBar — Discussion on the Revenue Stream of PayTV Communication Companies

November 1, 2020 By Kenneth Sousa

From a fundamental pricing and accounting perspective, the internet service sold by the communication providers is a fixed cost (servers and other overhead costs).

The “cable” to your home equates to a maximizing revenue model (much like the airlines). Ultimately, for flights, the airlines do not use a profit-maximization model. It is a revenue maximizing model. An additional passenger increases revenue by $200 (estimate), but the variable costs (beverages, peanuts, fuel) are minimal.

The additional variable cost to provide three services to your home through the “cable” are minimal after the variable costs of TV channels included with your cable package. These payments to channel providers (AMC, Paramount, Hallmark, etc.) on a per-subscriber fee.

Therefore, the costs of providing the internet and landline services are a fixed cost through the “cable” with negligible variable costs (like an airlines variable cost for an additional passenger).

Stop and think about it … look at your bill for the three-service package. Which service did they apply the package discount to? Hmmm … the internet service.

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