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Subscribers

7500

13750

20000

23750

25000

2 5500

26007

26519

27037

27560

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one educational station.

These signals are imported by microwave,

averging 3 hops of 35 miles each per channel.

Within five years the system is assumed to reach maturity, apart

from further growth due to rising incomes or enlargement of its

franchise area.

Penetration is predicted to be 28.1% if the distant

signals are fully available, but 27.2% as a result of exclusivity

protection on the independent channels.

Part B summarizes the growth of penetration, subscribers,

and system revenue (including advertising) over the first 10

years.

In Part C we may assess the impact of copyright fees on pro

fitability.

For each of the four fee schedules described earlier

we report two rates of return--one assuming a 10 year average life

time of capital, the second assuming 15 years.

If fixed capital

equipment is replaced about every 15 years, this system will earn

a 10.4% real rate of return on total invested capital absent any

copyright fees.

Alternatively, the statutory schedule (number 3)

reduces the rate of return to 9.3%, and the flat 16.5% fee lowers

returns sharply to 5.5%.

A shorter lifetime for equipment reduces

these returns by 2.5 to 3 percentage points.

In the analysis below we report rates of returns based only

on 15-year lifetimes.

Fifteen years represents a compromise be

tween somewhat longer physical lifetimes for some parts of the cable

plant and rather shorter economic lifetimes of currently operating

systems experiencing technological obsolescence.

It appears

unlikely that 20-channel systems built today will remain competitive

beyond 1985 without major rebuilding.

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 miss ing 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, N means 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

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