We address the problem of finite-state code construction for the costly channel. This channel model is a generalization of the hard-constrained channel, also known as a subshift. Adler et al. (1986) developed the powerful state-splitting algorithm for use in the construction of finite-state codes for hard-constrained channels. We extend the state-splitting algorithm to the costly channel. We construct synchronous (fixed-length to fixed-length) and asynchronous (variable-length to fixed-length) codes. We present several examples of costly channels related to magnetic recording, the telegraph channel, and shaping gain in modulation. We design a number of codes, some of which come very close to achieving capacity.
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