Break-Even Analysis

Media outlets such as ESPN and Fox Sports often have web sites that provide in-depth coverage of news and events. Portions of these web sites are restricted to members who pay a monthly subscription to gain access to exclusive news and commentary.

These web sites typically offer a free trial period to introduce viewers to the web site. Assume that during a recent fiscal year,ESPN.comspent $4,200,000 on a promotional campaign for theESPN.comweb site that offered two free months of service for new subscribers. In addition, assume the following information:

Number of months an average new customer stays with the service

(including the two free months)

14 monthsRevenue per month per customer subscription$10.00Variable cost per month per customer subscription$5.00Determine the number of new customer accounts needed to break even on the cost of the promotional campaign. In forming your answer, (1) treat the cost of the promotional campaign as afixed cost, and (2) treat the revenue lessvariable costper account for the subscription period as theunit contribution margin.

accounts