E sccr/21/2 Original: English date: August , 2010 Standing Committee on Copyright and Related Rights Twenty First Session Geneva, November to 12, 2010

The Challenge of Prices

142 As noted earlier, broadcasters make investments in the production of programming and the acquisition of program rights from other producers and must recover costs and achieve profits from revenue generated through the collective prices paid by advertisers or paying customers. When cable and satellite services are involved, broadcasters face significant issues regarding price because cable and satellite system operators normally act as retailers and are the go-betweens that provide channels to the paying customers. This leads to substantial struggles between channel owners and cable and satellite system operators over compensation received from systems for carrying the channel(s).

143 The pricing of commercial broadcasting is complicated because of the two-sided and multi sided platform nature of its markets. In traditional product markets, prices are closely aligned with the value of the product or service, but in two-sided or multi-sided markets the alignment is not as clear-cut because of the effect of other factors on prices and consumption. Consumers may or may not pay for receipt of the broadcast/cablecast/satellite content. Whether or not prices are charged for access, broadcasters and cablecasters have incentives to attract an audience that is as large as possible in order to increase their attractiveness to advertisers who also provide revenue. When services and revenue are also obtained from distribution systems provided by digital terrestrial television, cable, and satellite operators, price issues become even more complex because those operators may have their own incentives to carry a channel or alternative channels. Broadcasters and cablecasters must optimize access and returns by controlling prices and price relationships between fees to carry their channel, advertising rates and any audience payments.³⁶

144 In some states, prices for cable and satellite services are regulated as a public utility, increasing the pressure on system operators when negotiating channel compensation. When broadcasters or service providers are unable to recover their costs from advertisers or paying customers, their businesses will fail unless they subsidize operations with profits from other activities or reduce the level of services provided. System operators try to overcome this problem by providing a variety of basic and premium channel packages that allow consumers to choose among different channel bundles and price options. These decisions are both a matter of business logic and, in some cases, regulatory requirements. Individual broadcast and cablecast channels, however, do not have this option on their own.

145 Prices for basic pay television and radio services vary widely worldwide and nominal prices are related to general income levels. However, prices to receive services typically require a larger percentage of per capita GDP in countries with lower and middle incomes. This variance is reduced when premium services are involved, however.³⁷

146 It was noted in earlier discussions that unauthorized uses, particularly of paid encrypted broadcasts/cablecasts, force firms in the industry to recover costs across fewer paying customers and this raises the average price per paying customer. Doing so, however, can affect demand and consequently reduces the overall number of viewers and total revenue obtained.

147 Because of the price conundrum, some types of unauthorized uses can result in fewer channels and services being offered and consumers facing diminished choice and quality.