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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 11/. 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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FINANCIAL RATE OF RETURN

(15 year life) Copyright Fee Schedule No

3

4

Viewing Test

Imported by cable

Family Income

Penetration

copyri

31, IE

11,400

37.1

7.1

6.8

6.4

2.0

3. 3NV,110,110,

1EU

11,le

12,200

34.4

6.4

6.0

5.7

1.5

[blocks in formation]

Local

Size=10,000
1. 3NV, 110, 1EV INV

Markets 1-50
Density=150

$ 12, 200

Underground=10%
7.3%

7.0% 6.6%

21,1E

37.9%

2.2%

2. 3NV, 1EU

5. 2N, INU

6. INV, 2NU

Size=7,500 #

Markets 101 +
Density=100

$10,000

Underground=5%
7.8%

7.5% 7.1%

7. INV, 2NU

11, 1E

41.5%

1.9%

8. 2NU

Size=7,500 #

Outside Markets
Density=80

$ 9,000

Underground=0%
7.4%

7.0% 6.7%

9. 2N V

IN,31,1E

50.1%

1.3%

10.2NU

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[graphic]

Financial Rate of Return

(15 year life)

Copyright Fee Schedule No.
Size (Subscribers

1
2

3
in 5th Year)

3500 # 0.1%

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Size of System and Rate of Return

TABLE 8

Edge Markets 1-50

20-344 - 73 - 30

5000 #

Density = 150

Underground

= 10%

7500 #

Income = $12,200

Penetration = 37.9%

10000

15000

Signals:

Local
Viewing Test
Imported by Cable

3 NV, 1 IU, 1 EV
1 NV
2 I, 1E

25000

50000

Edge Markets 51-100

3500 #

5000 #

Density = 125

Underground

= 5%

7500 #

Income

= $10,000

Penetration = 44.9%

10000

Signals:

15000

Local
Viewing Test
Imported by Cable

1 N, 2 NU
1 NV
2 I, le

25000

50000

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TABLE 8 (con' t)

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Density = 125

7500 #

16.1

15.8

15.4

Signals:

2 NU

15000

19.9

19.3

18.6

12.8

Local
Viewing Test
Imported by Cable

1N, 1 I, 1 E

25000

23.8

23.0

22.2.

16.4

10000 #

13.6

13.2

12.7

2 NU

Signal:
O Local

Viewing Test
Imported by Cable

15000 #

16.5

15.9

15.2

in, 3I, 1E

25000 #

19.5

18.7

17.9

# = minimum originator facilities and

no advertising revenue. negative return

37

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