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Final rules of the Federal Communications Commission
governing cable television service in the 100 largest television
markets went into effect March 31, 1972, following six years of
FCC proceedings during which development of CATV service in major
cities has been effectively blocked by interim regulations pro
hibiting the importation of distant television signals.
rules as effective allow limited importation to occur, varying
with the size of the market and the locally-receivable signals,
but at the same time provide broad "exclusivity" protection to
local stations for their programs, thus requiring cable systems
to delete programs from the imported signals.
No provision for payment of fees by cable systems to the
copyright owners of television broadcast programming shown on
those systems is included in the FCC rules, and under the
Fortnightly decision cable systems are not liable for copyright.
Nevertheless, the Commission anticipates congressional legislation
to require copyright payments and would regard its enactment as a
reaffirmation of the FCC's regulatory program toward cable tele
1 Fortnightly Corporation v. United Artists, 392 U. S. 390 (1968) This study assesses the profitability of cable television
in the major markets under the final FCC rules and determines
the impact of alternative copyright fee schedules which have been
Our research builds on the computer simulation method
and detailed cost and revenue data developed by Comanor and Mitchell
in their published study of the impact of the FCC rules as pro
In outline, the analysis of CATV profitability focuses on a
number of market and system characteristics which can be identified
as typical or representative of a cable system if it were to be
constructed under current rules.
By varying the characteristics
(e.g., system size, or lineup of local signals, or housing density)
over a comprehensive set of characteristics, the outlook for cable
in nearly all parts of the major markets can be assessed.
analysis, costs and prices have been measured in 1970 values ;
costs, revenues and
rates of return are consequently in "real"
terms. Except for rules changes since July 1970, cost figures
are based on Comanor and Mitchell's detailed report. Throughout
this study when discussing the size of a cable system we refer
to the number of subscribers in its fifth year of operation, at
which point it has virtually achieved its final size.
Our analysis includes revenues from subscribers, determined
by penetration rates dependent on local and distant signals
carried, and a realistic amount from advertising on a local origi
No revenues or costs have been attributed to the
development of leased channels.
All systems considered in this study are newly constructed.
The effect of potential copyright fees on existing systems in
comparable market circumstances would be somewhat different only
in the short run.
For several years, these already-built systems
would experience reduced profitability and the systems
would earn lower returns than they had anticipated. At the same
time, revenues would still exceed operating costs, so that the
original systems would not actually go out of business.
subsequently, when the systems required rebuilding, the copyright
fees could make reconstruction unprofitable, since nearly the same
investment considerations apply either to rebuilding an existing
system or to constructing the same system in a similar but unwired
MARKET CATEGORIES AND SYSTEM LOCATION
In examining the probable effect of various provisions for
payment of copyright fees we will consider separately the
characteristics of typical cable systems in four types of markets:
the top 50 markets, markets ranked 51-100, markets below 100,
and areas located outside television markets.
The FCC rules permit
different signal carriage in each of these situations, and impos e
differential requirements affecting system costs.
In addition, the
density of housing, the prevalence of underground utilities and the
level of family income also varies by market size.
summary of these major market characteristics is set forth in
As R. E. Park's econometric findings 2/strongly demonstrate, the
location within the market is also of fundamental importance to
determining penetration levels.
For this study we therefore sub
divide each of the markets 1-50, 51-100, and 100+ into typical
"middle market" and "edge market" systems.
locations are close to off-the-air signals, while edge market
systems are approximately half-way between the transmitter and the
B-contour limit of the local signals,
(The forth category, an
"outside market" system, is necessarily at or beyond the location
of a typical edge market system.)
Thus the typical systems to be
analyzed fall into one of seven boxes in the following matrix:
2"Prospects for Cable in the 100 Largest Television Markets"
Exclusivity protection Capacity requirements
20 channels 2-way capability
20 channels 12 channels
12 channels 2-way capability 12-way capability -way capability
standard; minimum below 10,000 subscribers
standard; minimun standard; minimum minimum below 10,000
below 10,000 subscribers