CASE STUDY: STARHUB: ENGLISH

PREMIER LEAGUE

CASE STUDY – STARHUB

 CASE STUDY BACKGROUND

The most ardent fans of Arsenal are living in Manchester United, Liverpool, Highbury. Old Trafford,
Anfield, Hong Kong, and Singapore.

Last 2006-2007 season ESPN Star Sports held broadcast rights to the English Premier League (EPL)
of Singapore. There was a bid in late 2006, StarHub estimated bid was 160 Million USD for the reason
of beating ESPN Star Sports. SingTel won the rights for the next three seasons. The only satellite TV
cable allowed in Singapore is Starhub.

This is the timeline of Starhub’s revenue from 2001 to 2007.

For 2001, the company unbundled the basic cable TV package into basic packages and reduced the
price from $32.95 to $20 a month. In this year, they added new channels to the basic packages without
increasing their price.

Last 2004, the company raised the price of the sports package by $7 to $15 for monthly payment. They
added the ESPN Star Sports channel. Some cable tv operators paying content to providers such as
ESPN royalty fee based on the subscribers.

In 2007, Starhub’s major source of revenues was their mobile services which account with 52% of
their revenues, with cable TV, broadband, fixed network services, and equipment sales accounting for
17%, 12%, 14%, and 5%.

After the acquisition of the English Premiere League rights, Starhub did a price increases of the basic
packages starting July from $4 to $24 and sports packages starting October from $10 to $25.

Mr. Thomas Ee, Senior VP of Cable justified the price increase as mostly TV operators in the world
increasing prices periodically and their company have steady price for over the years.

For 2007, Starhub’s cable TV revenue grew by 9% from 313 Million USD to 342 Million USD. The
average revenue per user rose by 6% from $48 TO $51. The subscriber base increased by 4% to
504,000 as the end of December 2007. There was 45% penetration rate in Singapore household.

CASE STUDY – STARHUB

 Guide Questions
Identify changes in demand and costs (fixed
and marginal costs relative to the number of
subscribers) arising from StarHub’s acquisition
of the EPL rights. (a)
The impact of the demand after the StarHub’s
acquirement of the exclusive right of English
Premiere since the Singapore government
announced that there is only exclusive satellite
tv available.
The marginal cost would be the added cost
incurred due to the payment of the royalty to
ESPN and other channels.
There will be also fewer ESPN subscribers since
Starhub’s acquirement of the EPL rights. Since
these changes, the demand for Starbub’s
subscription could increase.
The demand for the sports channel increased by
4% despite of the price increase by 67%.
Which of the changes in (a) would be relevant
to StarHub’s pricing of cable TV services? (b)
There are factors that affected the pricing of the
cable tv such as the increase of fixed cost and
increase in the demand.
The company can increase the price of their
subscription as they are the only cable tv
available in Singapore and to maximize their
profit. This is example of a monopoly.
If the marginal cost increase, the price will
increase to increase and gain more profit.
Despite of the increase in subscription of the
packages from $4 to $24 and sport package to
$10 to $25 there is still increase of customers.
Do you think that, prior to the 2007 price
increases, StarHub’s prices had maximized
profits? (c)
The maximization of profit of the company will
be depending on the effects of decrease in basic
package prices and increase in sport package and
if
It will cause to affect their marginal revenue to
their marginal cost, or it will be opposite.
Starhub’s maximized their profit as they did
many decisions to maximize it such as in:
2001, the cable tv operator decrease the
subscription price and make varieties of channel
bundles and addition of new channels for their
subscribers without increasing any price. They
would like to be achieved the increase of
CASE STUDY – STARHUB
demand in their subscribers, increase market
share, and increase profit for the company.
From the viewpoint of a content provider like
ESPN which receives a per customer royalty
from a cable TV operator, explain the moral
hazard to which the cable TV operator is
subject. (d)
To define, moral hazard problem can occur
where one party is ready to take more risk as the
burden of that risk falls into other party.
This problem will occur if the ESPN subjects to
any issue or problem the cable tv operator will
be the one responsible to resolve the issue to its
customers.
The moral hazard problem is that the Starhub’s
is sponsoring ESPN then the customers are
paying royalty fee and one of these is ESPN.
From the viewpoint of EPL, explain how a
lump-sum bid would resolve asymmetry of
information between EPL and cable TV
operators. (e)
In this case, asymmetry information between
EPL and Starhub’s operators arises because
cable tv company considered that if they win the
bid the company will get higher profit.
Asymmetry of information occurs when one
party has better or more timely information than
the other party.
EPL undetermined the subscribers of cable tv
operators. As stated in the case, Starhub
monopolized EPL in Singapore after winning
the bid as the only operator.
In this part, EPL has only few information
regarding the transaction between Starhub and
them. The company has no idea how the Starhub
will manage the issue and possible charges in
cable TV operator in Singapore for the next
future.
For ELP, to solve the asymmetry the company
agreed to huge lump-sum bid.
The amount of bidding was estimated 160
Million USD shows how much important to
Starhub to monopolize the market in Singapore
and the gain of profit is visible.
In the future, due of this situation EPL will be
protected in lack of information, can gain the
exclusive rights in a specific location in
Singapore, and be a monopoly with control of
market without the consideration of any
asymmetry.
Source:
 Thomas, C., & Maurice, S. C. (2016). Managerial
Economics Foundations of Business Analysis and
Strategy (12th ed.). McGraw-Hill Education.
 Wilkinson, N. (2005). Managerial Economics A
Problem-Solving Approach. Cambridge University
Press.
CASE STUDY – STARHUB
CASE STUDY
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
(c) 2008, I.P.L. Png. This case is based, in part, on
“Singaporeans to pay more to watch EPL next
season”, Straits Times, 11 May 2007; StarHub,
“StarHub to revise pay-TV prices in step with
increasing content costs”, Press
Release, 11 June 2007; “'We have no choice,' says
SCV”, Channel News Asia, 12 June 2007, 0640 hrs
(SST).
© 2008, Ivan Png 2 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.
Questions
a. Identify changes in demand and costs (fixed and
marginal costs relative to the number of subscribers)
arising from StarHub’s acquisition of the EPL rights.
b. Which of the changes in (a) would be relevant to
StarHub’s pricing of cable TV services?
c. Do you think that, prior to the 2007 price increases,
StarHub’s prices had maximized profits?
d. From the viewpoint of a content provider like
ESPN which receives a per customerroyalty from a
cable TV operator, explain the moral hazard to which
the cable TV operator is subject.
e. From the viewpoint of EPL, explain how a lump-
sum bid would resolve asymmetry of information
between EPL and cable TV operators.
CASE STUDY – STARHUB