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

VII. EFFECTS OF UNAUTHORIZED USES ON INVESTMENT

171 The previous section detailed the immediate (short-term) business economic effects of unauthorized uses on broadcasters’ and cablecasters’ costs, demand, and revenues. This section considers its effects on investment decisions, which tend to involve longer-term considerations.

172 Commercial investments in broadcasting (terrestrial and satellite) and cable, and satellite and cable infrastructures and programming are made based on analyses of the current and future market and the prospects for recovering investments costs and achieving an adequate level of return. Firms require a reasonable return on invested capital and adequate funds for reinvestment in the enterprise or they will choose to use their capital otherwise.⁵⁵ Investments made by state, public service, and community broadcasters are also made with the expectation that the benefits they seek to provide will be achieved and that cost recovery for their investments will be possible.

173 These basic business analyses are made in both free-to-air and pay television settings because investments in programming that exceed the average programming cost for a particular daypart—that is, premium cost programming—are discretionary and not required for maintaining a basic level of service. The challenges of unauthorized uses are particularly salient to cable system operators, satellite system operators, and pay television operators (on whatever platform) in making future investments in infrastructures and systems.

174 Higher levels of unauthorized uses among the potential customers are likely to lead broadcasters to decline or constrain initial investments; lower levels are likely to lead them to make initial investments.

175 Once the investment is made, unauthorized use can no longer affect the initial decision to invest. If the levels of unauthorized use are stable, they do not alter revenue or cost recovery projections made at the time of the investment. However, if unauthorized uses rise in ways that reduce the number of paying customers,⁵⁶ it will harm revenue and cost recovery for investments made. If the unauthorized uses decline and increase the number of paying customers, revenues will rise and cost recovery for investments will benefit.

176 Unauthorized uses, however, affect willingness to make additional investments in existing enterprises, including investments in technologies and premium programming. Consequently, if there are high levels of unauthorized use or levels are rising among customers or potential customers, broadcasters and cablecasters alike are likely to constrain or decline to make additional investments; if there are low or tolerable levels of unauthorized use, they are likely to make additional investments.

177 The effects of unauthorized uses on investment are particularly germane to the provision of additional broadcasting, cablecasting, satellitecasting, and broadband services in regions and states where investments in such services have not already been made or are in early stages of industry development and growth.