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MARKETING NEW MEDIA/Dec. 16, 1991/P. 4 of 8 HIGHLY PENETRATED SYSTEMSt THE BASIC/PAY TRADEOFF It's the rare cable system that hits home runs on both the basic and pay fronts. Most big-city operations achieve high pay but below-average basic penetration (MARKETING NEW MEDIA, 11/18/91). And the reverse appears to be true for many classic rural systems. The analysis on P. 5 tracks the performance of 48 randomly selected systems with 83Z to 87Z basic penetration of homes passed (HP) at 12/31/88. Two years later, the group's weighted-average basic/HP ratio sliv.>Qfrom 85Z, whereas the pay/basic reading held steady at 52Z. Several factors may be responsible for these ratios, which are roughly flip-flopped from U.S. averages (60,IZ basic/HP, 80.2Z pay/basic at Dec. 31, 1990: e The systems in our sample serve communities that read like a Who's Who of rural America, Living outside of major TV markets, residents often can't got clear reception of even broadcast network affiliates without cable. Consequently, a chunk of the sub base includes lighter-viewing and broadcast TV-oriented households that would probably resist cable in an urban area with more over-the-air program choices. They may take basic cable in a rural region, but they're less likely to pay extra for a premium channel. e High basic/HP ratios always depress pay/basic readings. The ^.ample systesis' 43.6Z weighted-average pay penetration of hemes passed, however, fell only slightly below the 48.2Z national average at year-end 1990. e Several of the highly-penetrated systems are classic rural opera tions lacking the channel space to offer all of the major premium services (35 of the 48 systems served fewer than 10,000 subs at Dec. 31, 1990). Another factor at work is the tendency to take basic-only service as monthly basic rates increase. In highly-penetrated systems, the basic/HP ratio also appears to be sensitive to above-average basic rate increases. Of ,the 48 sample systems, 28 (58Z) saw a decline in basic penetration between year-end 1988 and year-end 1990. But among 18 systems that raised basic rates faster than the sample group's weighted-average of 23.6Z during the same timeframe, a much larger percentage (78Z) saw basic penetration fall. Moreover, among 10 systems lifting basic rates by less than lOZ over the two-year period, only two (20Z) suffered a drop in basic penetration. CABLE ' ’AY TV CENSUS--DECEMBER 13/31 •1990-91 Chsnga- U.S. TV housahoida (TVHH) Homs passed by cable Basic cable subs Pay cable units Local cable ad hoMS Expanded basics Video shopping hoMS Backyard dishes Backyerd pay TV subs SMATV subs Wireless cable subs (HMDS Homs passed Z of TVHH Shopping hoMS % TVHH Cable subs X of TVHH Backyard dishes Z of TVHH Cable subs Z of hoMS pas: Pay units Z of cable subs ‘Projected 1990 1991*199?*Unit Percent (mils)91.100 92.100 93.060 1.000 I.IZ (mil.)86.000 87.900 89.400 1.900 2.2 (mil.)51.740 54.060 56.150 2.320 4.5 (mil.)41.510 42.300 43.500 0.793 1.9 (mil.)44.000 48.000 52.000 4.000 9.1 (mil.)12.200 13.000 14.000 0.8C0 6.6 (mil.)65.000 67.000 69.000 2.000 3.1 (mil.)3.030 3.469 3.750 0.439 14.5 (mil.)0.700 0.750 0.825 0.050 7.1 (mil.)0.825 0.885 0.945 0.060 7.3 (mil.)0.148 0.203 0.282 0.055 37.2 94Z 95Z 96Z 71Z 73Z 74Z 57Z 59Z 60Z 3Z 4Z 4Z Id 60Z 62Z 63Z 80Z 70Z 77Z 1 Paul Kagan Associates, Inc.,estimates. 1