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Figure I

Alternative Copyright Fee Schedules

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fee schedules for payment by cable systems to copyright owners.
Schedule 1 is the baseline case of zero fees. Schedules 2 and
3 levy successively larger fees as the system's revenue grow.
Schedule 3 (incorporated in Bill S.644) begins at of subscriber

revenues, and rises to 5% of revenues exceeding $1,40.000 annualiyo Schedule 2 is exactly half of Schedule 3. For the fourth Schel...

we consider a flat fee of 16.5% of subscriber revenues, regarding

of the size of annual revenue.

The exact details of these fees are

set forth below and in the accompanying figure i.

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Schedule 3

in comparing systems in different market circumstarces and .**

Schedule 2

aiternative fee schedules, we keep unchanged the subscriber prace as well as the system size and other attributes of the CATV service Cable television system, have some of the attributes of a sat.18:

monopoly.* !lowing principally from their high fixed-low variatie

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cost nature.

But, in practice, the behavior at

the answer depends primarily on how rapidly penetration would

crble systems is

increasingly limited by local and federa. *•

30 prices were raised; in technical economic terms, on the

ulation, and by competition among firms for franchiser, $con guide demand. If, for example, a 16.5% increase in price,

these forces sharply restrict the ability of catie lini ter

tay $ % per month to $5.83, results in a 16.5% decrease in pene

price or output at will.

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Present regulation and competition for new franc*: sab.

196rn sateiy) 4/ no effect on total subscriber revenue--it is

the threat of more extensive regulatory action ir firm bea1.*

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is perceived as excessive, has kept monthly subscriber rates

A basic result of economic theory states that consumers' demand

virtually constant in current prices over several years. Seben

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in 1970, found most recently franchised systems charging te ver $5.00 and $7.00 per month. in their sample of paceBook ; d'ens Comanor and Mitchell reported a mean price of $5.00 per month

1.4. areas with a diversity of broadcast signals, with generally

Thus house

ar tonopt.on and .th a variety of entertainment alternatives ca

Park in 1972 has an annual average price of $*) for his same if

Dezee to decline service rapidly as prices rise. This

A-contour cable systems.

The assumption that moderate cost 1*******

m....!! of good substitutes for CATV describes most top 100

including copyright tees, cannot be passed on in the fon of .;*:


prices is consistent with the recent market experience.

econometric work of R.E. Park confirms this degree

.* .28:sity of demand in such areas; in fact, the figures

Assuming no price response by cable firms 16 a 19.4*.**!*

.?? terpie above correspond almost exactly to Park's statistical

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make strong representations to local auttorities about the seed ***

higher prices, and bids for new franchises would quote misht

rates. But granting for the moment that regulators allowed para or all of the surcharge to be transla ed into higher subscriber

3.-.:190 the percentage changes, for convenience, in terms

or:.*: price and penetration, results in a slight apCTONA:n. A more exact result is obtained using the #t* f the oid and new price and penetration. Part 'Prosperts for cable...', p. 140. Par 8: 55:on of the effect of demand elasticity on maximum

rates permitted by a regulatory authority, see Comaner and Mitcheli, "The costs of planning: The PCC and cable Televisio

raies, how would cable profits be affected?

The answer deport, primarniy on how rapidiy penetrata in

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der line a. prices were ra.sed: in technical enmis terr., on the

eiasticity uf demand. 17 1 exa-piede. in rease in price frum $5.00 per month to $5.63 rraules in a 16.5* de rease in pere

tratan say from him to 25

n mes passed ten the higher pr.

--it is

nas (approximatelyi g'ni effect on total u ser.ter te." tudly offset by reduced denard for servir.

A Dic reaalt on ric empiry states that coreer

de and

r. werke will be increasingly arneitave tw its price as muro

srdci ser statietes are avaiati fos that service. Th

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> ld. in areas with • divers.ty of bri ad azt s mnais

with pererally

clear reception and with a varietynt er. ertainment alternatives ca

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a miysis of the profitability of systems under the alternative

How, then would cable systems' profits be affected by a les

assumption of higher rates and consequently reduced penetration

copyright payment and a concomitant rise in subscriber rates?

rred yleid approximately the same findings.

Revenues would be unchanged while operating costs would increase

sharply by the amount of the copyright payments. There wild

be some small offsetting changes in other incremental coats

resulting from the saving achieved by not serving the subscribers

do not purchase service at the higher price

for typical systems

there are rather small costs of installing additional dropres

additional maintenance and billing expenses and slightly higher

taxes and dues related to numbers of subscribers.

In conseyuence, the net effect of allowing higher subscriber

rates in con unction with 16.5% copyright fee payments would be t

reduce rates of return to nearly the same level. a. wouid be

achieved by holding subscriber rate. unchanged with the sare le.

copyright fees.

In addition, penetration would be lower priere

a narrower base for future leased-channel services capable of

generating additional payments from cable systems to program ....***

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has not been abserved. In the remainder of this sudy we adhere to . 11 xed monthly price of $9.9. Por maximum cati bradcast service aliewed by the pre ruies.

P. $1.11 se-ond m aior set. in :* hjem.3o. ' One other reminder may be in order in the we are crn.isering die

prices and cost. in 17. ter., 1rease in the oriy Obcript rate at t erase as rease c# caset price: gemeraily will revirad.

borrative that L

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