on the cable' and

allow only two distant signals at any moment "fills in the blanks" where possible, it can reduce the blackedout time to about 24%. Importing a fourth independent further reduces this to 15%, etc. The boxed-in figures represent the expected effect when no stand-by signals are imported.

The impact of the exclusivity rules on subscriber penetration is likely to be at least as great as the reduction in viewing hours. Programs receiving protection will be predominantly those with large audiences, many of whom would value an earlier or alternative viewing date or time which cable could otherwise provide. Nevertheless, lacking data to refine an estimate of this effect, we assume that exclusivity protection is equivalent in its impact on penetration to a proportionate reduction in the number of full-time distant independents carried on the cable, using the appropriate boxed figures from Table 2.

Will it be profitable for a cable system import stand-by independent signals? The costs of additional imports will rise as the CATV system must go further to find each additional independent. Concurrently, the proportion of time that can be filled in with each extra signal is declining. The exclusivity rules thus place the cable firm in a situation of sharply diminishing returns as regards additional penetration from distant signals. Generally, the answer will be "no." Exceptions may occur where the

stand-by independent has particularly attractive programming, or when importation costs are less dependent on distance, as could occur with satellite transmission.

Regarding importation costs, we have assumed for all systems

in this study that distant signals are delivered by cable

system-owned microwave links of 50-100 miles per channel imported. Average distances to the first and second closest independents (in the top 25 markets) are tabulated in the appendix. These averages range from 91 to 208 miles to the closest signal, and 125 to 325 miles for the next closest for several types of markets. Thus the microwave cost estimates used here must be considered generally low, although they may be closer approximations for markets with several closely spaced systems which pool their

microwave facilities.

COPYRIGHT FEE SCHEDULES

In the analysis which follows we consider four alternative 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 grows. Schedule 3 (incorporated in Bill S.644) begins at 1% of subscriber revenues, and rises to 5% of revenues exceeding $640,000 annually; Schedule 2 is exactly half of Schedule 3. For the fourth Schedule we consider a flat fee of 16.5% of subscriber revenues, regardless of the size of annual revenue. The exact details of these fees are

set forth below and in the accompanying figure 1.

In comparing systems in different market circumstances and with alternative fee schedules, we keep unchanged the subscriber price as well as the system size and other attributes of the CATV service. Cable television systems have some of the attributes of a "natural monopoly," flowing principally from their high fixed-low variable

cost nature. But, in practice, the behavior of

cable systems is increasingly limited by local and federal regulation, and by competition among firms for franchises. Both of these forces sharply restrict the ability of cable firms to adjust price or output at will.

Present regulation and competition for new franchises, plus the threat of more extensive regulatory action if firm behavior is perceived as excessive, has kept monthly subscriber rates virtually constant in current prices over several years. Seiden, in 1970, found most recently franchised systems charging between $5.00 and $7.00 per month. In their sample of Factbook systems Comanor and Mitchell reported a mean price of $5.00 per month. Park in 1972 has an annual average price of $63 for his sample of A-contour cable systems. The assumption that moderate cost increases, including copyright fees, cannot be passed on in the form of higher prices is consistent with the recent market experience.

Assuming no price response by cable firms if a 16.5% surcharge were imposed requires further discussion. Firms would doubtless make strong representations to local authorities about the need for higher prices, and bids for new franchises would quote higher rates. But granting for the moment that regulators allowed part or all of the surcharge to be translated into higher subscriber rates, how would cable profits be affected?