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TABI 6
LARGE SYSTEMS IN EDGE MARKETS

5TH YEAR

S IGNALS

ICEAL

Viewing Test

Imported by cable

Family Income

Penetration

FINANCIAL RATE OF RETURN

year life) Copyright Fee Schedule No. 1

2 3

4

Size=25,000 1. 3NV, 110, 1EV INV

Markets 1-50 Density=150

$12,200

Underground=10% 12.6%

12.0%

21,1E

37.9%

11.4% 7.6%

3I, IE

11,400

37.1

12.3

11.7

11.1

7.0

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Local

2. 3NV, 1EU

3. 3N, 110, 110,

1 EU

4. 3NV, 1EU

5. 2NV, INU

6. INV, 2NU

7. INV, 2NU

8. 2NU

Size=15,000 #

Quts ide Markets
Density=80

$ 9,000

Underground=0%
11.4%

10.9%

9. 2NV

IN, 31, IE

50.1%

10.3% 5.2%

10.2NU

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F INANÇ LAL RATE OF RETURN

(15 year life) Copyright Fee Schedule No. 1

2

Viewing Test

Imported by cable

Penetration

Lamily Income

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11,400

37.1

7.1

6.8

2.0

3. 3NV,110,110.

IEU

11,15

12,200

34.4

6.0

5.7

1.5

21, 1B

10,200

38.4

6.5

6.1

5.7

1.4

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Local

Size=10,000
1. 3N, 110, 1BV IN

Markets 1-50
Density=150

$12,200

21,18

37.9%

Underground-10%
7.3%

7.0% 6.6%

2.2%

2. 3N, 1EU

Size=10,000

Markets 51-100
Dens ity=125

$11.400

Underground=5%
5.5% 5.2% 4.8%

3NV, 1 EU

21,15

36.3%

0.7%

5. 2NV, INU

6. IN. 2NU

Size=7,500

Markets 101
Density=100

$ 10,000

1. INV, 2NU

11,18

41.5%

Underground=5%
7.8% 7.5% 7.1%

1.9%

8. 2NU

Size-7,500

Outside Markete
Density=80

$ 9,000

Underground=0%

7.0%

9. 2N V

IN.31,15

50.1%

10.2NU

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57-786 0.76 - pl. I - 36

10000 #

Signal:

13.6

13.2

12.7

2 NU

Local
Viewing Test
Imported by Cable

15000

16.5

15.9

15.2

IN 31.12

25000

19.5

18.7

17.9

no advertising revenue. negative return

tions we have reported.

Some communities will have higher incomes,

others will require extensive undergrounding, still others will

require high-cost local origination facilities, etc.

To measure the sensitivity of our findings for typical systems

to such variations, we have rerun all of the intermediate-sized

systems (tables 5 and 7) assuming that penetration is one-third

greater than would be expected on average, for each set of market

characteristics.

A variety of unmeasured factors can cause actual

penetration to vary above or below the average value predicted by

the penetration equation.

In increasing the average value by one

third we have in effect selected only the 10% of the cases in which

penetration is most favorable; in other words, nine out of 10 com

munities having the same signal lineups, income, etc. will have

lower penetration.

Turning to the results in Tables 9

and 10 we find that such

unusually high penetration is sufficient to produce at least one

profitable system in each type of market, at least if copyright

fees are absent.

Thus, 7,500-10,000 subscriber systems have some

chance of earning a going rate of return in the top 100 markets

only when local circumstances produce unusually favorable penetration.

We turn finally to the financial prospects for cable when

copyright fees are required.

The predominant effect of Schedule

3, the statutory fees proposed in S.644, is to reduce the financial

rate of return on total capital a full percentage point for profitable

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