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RESULTS--IN DETAIL

The financial prospects for cable under the final FCC rules

and the impact of alternative copyright fee schedules are contained

in the seven tables which follow.

While we shall briefly review

the major findings here, the reader should consult the tabulations

for particulars.

Tables 4 and 5 report the expected experience in

middle markets of large and intermediate sized systems respectively.

Line 1 of Table 4 restates the example system discussed in

detail above.

Lines 2. and 3 are for similarly situated communities

with somewhat different sets of local signals.

Penetration ranges

from about 22-27%

and rates of return from 7.5 to 10.4% when there

are no copyright fees.

Despite somewhat higher penetration rates,

systems in the second 50 middle markets earn lower returns, princi

pally because of reduced density, while in the lowest ranked mar

kets there is great variation, with profitable, 55% penetration

systems when one network is missing from the local signals.

Intermediate-sized systems in middle markets are decidedly

below the 10% rate of return needed to attract investment funds.

Except where quite large systems of 25,000 or more subscribers

can be built, central city areas of the major markets are not bright

prospects for cable under present rules, even without copyright

payments.

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In these tables, Nmeans network, I means independent, E means educational;

V means NHF, U means UHF.

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# = minimum origination facilities and no advertising revenues. *= negative return

The prospects for large systems at the edge of major markets

(Table 6) are brighter.

In the top 50 markets penetration is in the

34-38% range with rates of return 11.0-12.6%.

In the second 50

markets penetration ranges up to 45% with rates of return from 9.7

13.4%.

In the smaller markets and also the fringe (outside) areas

we find more heterogeneous results, with quite profitable CATV

possibilities where fewer than three networks are available.

The corresponding intermediate-sized edge systems are again

unprofitable in all 3 network cases.

This indication of the im

portance of large systems, or economics of scale in technical

terms, is developed in more detail in Table 8, by systematically

varying the size of the most profitable system from each of the

four market types in Tables 4-7.

While large systems would seem

feasible in the major metropolitan areas, as of March 1971 only

20 systems had more than 20,000 subscribers and the largest had

less than 50,000 1/.Some fraction of these economies of scale can

be achieved when a series of smaller systems are under common

ownership and thereby realize savings from efficient use of

management and technical personnel and can share local programming and

and signal importation expenses.

The results presented in tables 4-8 are based on market, economic

and construction factors which typify the most common situations

which will be encountered in middle and edge locations of each of

the four types of markets.

Of course, within each category there

will be a degree of variation,

clustered around the typical situa

11 Television Digest, CATV and Station Coverage Atlas.

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Viewing Test

Imported by cable

Family Income

Penetration

ght fęe sche

FINANCIAL RATE OF RETURN

(15 year life) Copyright Fee Schedule No. 1

2 3

4

Markets 1-50 Density=150

Underground=10% 12.6%

12.0%

37.9%

11.4% 7.6%

2. 3NV, 1EU

3I, IE

11,400

37.1

12.3

11.7

11.1

7.0

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Local

Size=25,000
1. 3NV, 1IU, LEV INV

$12,200

21,1E

Size=15,000

Markets 101 +
Density=100

$10,000

Underground=5%
10.7%

10.2%

7. INV, 2NU

11, 1E

41.5%

9.7%

4.9%

8. 2NU

Size=15,000 #

$ 9,000

9. 2NV

IN,31, 1E

10.2NU

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