this represents the central experience to be expected in the major markets. In addition, a selected number of intermediate sized systems have been analyzed using penetration rated 33% greater than predicted on average. Such increased penetration is definitely atypical, and would be expected to occur in only about one out of ten market situations, because of factors not fully accounted for in the penetration equation.

11

DENSITY

Density, the number of homes per cable mile, can vary considerably from one potential franchise area to another. Comanor and Mitchell reported an average density of 95 within major markets, and 79 outside, in their sample of Factbook systems. More recently available data for a number of municipalities in the Dayton, Ohio and Boston, Massachusetts areas are tabulated in the appendix. For systems in this study we have assumed somewhat higher densities than considered by ComanorMitchell, ranging from 80 homes per mile outside of television markets up to 200 homes per mile with 20% of plant underground in the central areas of markets 1-50.

In practice, of course, both higher and lower densities will be encountered. But the tendency to a substantially higher figure for any important number of similar systems is unlikely in view of the FCC's emphasis that it will not authorize carriage of broadcast signals by systems which do not serve all parts of the community. 3/

3/ Federal Register, p. 3276, $180

THE EFFECT OF THE EXCLUSIVITY RULES

The new FCC rules require cable operators to "black-out"

numerous classes of programs on imported signals when those programs are also shown by a local station. The degree of protection provided varies with the type of programming and may extend up to two years. For our purposes the primary effect of these rules is to reduce the attractiveness of distant signals to subscribers and thus reduce cable penetration. Aside from providing for one channel-switching device for each imported signal, we have not allowed any additional costs of performing the blackingout function itself, keeping records, etc.

At this writing, evidence on the magnitude of the exclusivity effect is limited to a preliminary study by R. E. Park, "The Exclusivity Provisions of the Federal Communications Commission's Cable Television Regulations."

From detailed program listings for

four stations---two networks and two independents---plus partial listings for ten other stations, Park synthesizes the expected proportion of a broadcast week that a distant signal would be blacked out. A portion of his findings are reproduced in Table 2. Park's results indicate, for example, that in those top 50 markets in which local service provides three networks and one independent, the cable system importing two additional independents will be required to black them out about 39% of the time. If it imports a third independent (on a stand-by basis, since the rules

TABLE 2

PERCENTAGE OF TIME DISTANT SIGNAL CHANNELS ARE BLACKED-OUT

Source: R.E. Park, "The Exclusivity Provisions of the Federal
Communications Commission's Cable Television Regulations,"

Table 2, p.5.

allow only two distant signals at any moment

on the cable) and "fills in the blanks" where possible, it can reduce the blacked

out 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