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UNDER THE 1972 FCC RULES AND THE IMPACT OF ALTERNATIVE COPYRIGHT FEE PROPOSALS
AN ECONOMIC ANALYS IS
BRIDGER M. MITCHELL
in Association With
ROBERT H. SMILEY
September 20, 1972
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
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 dens ity)
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' owners
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