Impact of Cost Reduction on Service Viability
A company is considering launching a new online streaming service. The fixed cost to produce and host the content is initially estimated to be $1 million per month. After analyzing the market, the company concludes that there is no subscription price they can set that will allow them to cover this cost and make a profit. However, a new cloud computing deal becomes available that would lower their fixed cost to $600,000 per month. Explain how this reduction in fixed cost could change the company's decision to launch the service. In your answer, describe the relationship between production cost, the price charged to consumers, and the potential for profitability.
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