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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 pro
tection provided varies with the type of programning 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 pro
viding for one channel-switching device for each imported signal,
we have not allowed any additional costs of performing the blacking
out 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
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.
imports a third independent (on a stand-by bas is, since the rules
PERCENTAGE OF TIME DISTANT SIGNAL CHANNELS ARE BLACKED-OUT
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 rep
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
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
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
The costs of additional imports will rise
as the CATV system must go further to find each additional inde
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 programning,
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 appen
These averages range from 91 to 208 miles to the closest
signal, and 125 to 325 miles for the next closest for several types
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
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 5.644) 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.
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