165 An important element in effects of unauthorized uses relates to elasticity of demand for reception of broadcast channels. The fundamental law of demand indicates that as price increases, the quantity of consumption by consumers decreases and vice versa. Elasticity of demand is a measure of the amount of change that occurs.53 Clearly, this has implications for paid broadcasting and the ability and willingness of consumers to pay for services or to substitute similar services (satellite for cable, for example) that are available at a different price. The concept does not apply to audiences of free-to-air broadcasting where there is no direct monetary price for consumption.
166 Audiences are not the only consumers in the broadcasting environment, however. Advertisers are also consumers and the concept applies to them in both pay and free to air settings. Their demand involves decisions as to whether to pay prices offered, what amount of advertising to purchase, and their willingness to substitute one broadcaster over another. Demand also applies when broadcasters sell rights to carry their signals to cable and satellite operators and to the sales of rights to broadcasters. The effects of these demand and elasticity issues are integrated in the analysis in Table 1.
167 If unauthorized use is made, it may or may not affect company revenue depending on consumer demand issues. If unauthorized use of free-to-air signals is made, or if unauthorized use of pay signals is made by persons or entities unable or unwilling to
pay the price for authorized services, no actual loss occurs to company revenue, but it may affect the broadcaster’s ability to sell its broadcast signals to other parties willing to pay.54
168 However, if unauthorized use is made by consumers and retransmitting organizations who would otherwise be able and willing to pay for authorized use, the broadcaster is denied revenue that it would otherwise receive from these consumers and organizations. These unauthorized uses may also interfere with the broadcaster’s ability to sell its broadcast signals to other parties that are willing to pay. The same applies to cablecasters.
169 Four fundamental conditions must then be considered in determining the economic effects of unauthorized use: is the use within or external to the intended market of the signal, and does the use involve free-to-air or paid broadcast signals? Table 1 shows the economic effects of unauthorized uses under these four conditions. These provide the fundamental elements that help focus attention to harm done shown in the analysis tree in Figure 3.
170 These economic effects are similar whether the unauthorized use is made in pre- or post signal environments.
Table 1: Summary of Economic Losses in Different Situations
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|
Effect on Marginal Costs
|
Effect on Average Costs
|
Effect on Demand
|
Effect on Revenue
|
Within the Intended Market of the Signal
|
Unauthorized signal reception
|
Free-to-Air: None
Paid: None
|
Free-to-Air: None
Paid: May increase average cost if receivers are able and willing to pay
|
Free-to-Air: None on consumer demand
May increase or decrease demand for advertising depending on whether ad service fees change based on increased or decreased viewership and whether ads are removed or replaced
Paid: Possible loss
to the extent that receivers are able and willing to pay
if users stop subscribing and shift to viewing broadcasts that are received without authorization
|
Free-to-Air: May increase or decrease advertising income depending on whether ad service fees change based on increased or decreased viewership and whether ads are removed or replaced
Paid: Possible loss
to the extent that receivers are able and willing to pay
if another operator who is able and willing to pay decides not to buy or pay as much for the rights because of unauthorized reception in the intended market
if users stop subscribing and shift to unauthorized signals
|
Unauthorized decryption
|
Free-to-Air: None
Paid: None
|
Free-to-Air: None
Paid: May increase average cost if receivers are able and willing to pay; will increase average costs if new decryption technologies must be deployed
|
Free-to-Air: May increase or decrease demand for advertising
Paid: Possible loss
to the extent that decrypters are able and willing to pay
if users stop subscribing and shift to viewing unauthorized decrypted signals
|
Free-to-Air: May increase or decrease advertising income
Paid: Possible loss
to the extent that decrypters are able and willing to pay
if another operator who is able and willing to pay decides not to buy or pay as much for the rights because of unauthorized decryption in the intended market
if users stop subscribing and shift to unauthorized decryption
|
-
|
Effect on Marginal Costs
|
Effect on Average Costs
|
Effect on Demand
|
Effect on Revenue
|
Within the Intended Market of the Signal (Continued)
|
Unauthorized retransmission
|
Free-to-Air: None
Paid: None
|
Free-to-Air: None
Paid: May increase average cost if receivers are able and willing to pay
|
Free-to-Air: None on consumer demand
May increase or decrease demand for advertising
Paid: Possible loss
if receivers substitute the original signal
if users stop subscribing and shift to viewing unauthorized retransmissions
|
Free-to-Air: May increase or decrease advertising income depending on whether advertising fees change based on increased or decreased viewership and whether ads are removed or replaced
Paid: Possible loss
if retransmitters substitute parts of the original signal or retransmitters would pay
if another operator who is able and willing to pay decides not to buy or pay as much for the rights because of unauthorized retransmission in the intended market
if users stop subscribing and shift to unauthorized retransmissions
|
External to the Intended Market of the Signal*
|
Unauthorized signal reception
|
Free-to-Air: None
Paid: None
|
Free-to-Air: None
Paid: None
|
Free-to-Air: None on consumer demand
May increase or decrease demand for advertising
Paid: Affects consumer demand and demand for advertising for paid broadcasters in the external market
None in the intended market, unless signals are reintroduced into the intended market
May affect demand for other broadcasts intended for that market
|
Free-to-Air: May increase or decrease advertising income in the intended market if the broadcasts that are received without authorization are reintroduced into the intended market and audience size/ratings decreases as viewers shift to viewing unauthorized broadcasts
May increase or decrease advertising income of broadcasters in the external market
(Change in advertising income also depends on whether ad service fees change based on increased viewership and whether ads are removed or replaced)
Paid: Possible loss (advertising and subscription) for paid broadcasters in the external market
None in the intended market, unless signals are reintroduced
May affect revenue for other free and pay broadcasts/cablecasts intended for that market and for rights sales
|
-
|
Effect on Marginal Costs
|
Effect on Average Costs
|
Effect on Demand
|
Effect on Revenue
|
External to the Intended Market of the Signal* (Continued)
|
Unauthorized decryption
|
Free-to-Air: None
Paid: None
|
Free-to-Air: None
Paid: Will increase average costs if new decryption technologies must be deployed to protect signal
|
Free-to-Air: None on consumer demand
May increase or decrease demand for advertising for broadcasters in the internal and external markets
Paid: May affect consumer demand and demand for advertising for paid broadcasters in the external market
None in the intended market, unless decrypted signals are reintroduced into the intended market
May affect demand for other broadcasts intended for that market
|
Free-to-Air:
May increase or decrease advertising income in the intended market if decrypted signals are reintroduced into the intended market and audience size/ratings decreases as viewers shift to viewing unauthorized broadcasts
May increase or decrease advertising income of broadcasters in the external market
(Change in advertising income also depends on whether ad service fees change based on increased viewership and whether ads are removed or replaced)
Paid: Possible loss (advertising and subscription) for paid broadcasters in the external market
None in the intended market, unless decrypted signals are reintroduced into the intended market
May affect revenue of other free and pay broadcasts/cablecasts intended for that market and for rights sale
|
-
|
Effect on Marginal Costs
|
Effect on Average Costs
|
Effect on Demand
|
Effect on Revenue
|
External to the Intended Market of the Signal* (Continued)
|
Unauthorized retransmission
|
Free-to-Air: None
Paid: None
|
Free-to-Air: None
Paid: None
|
Free-to-Air: None on consumer demand
May increase or decrease demand for advertising
Paid: May affect consumer demand and demand for advertising for paid broadcasters in the external market
None in the intended market, unless the signals are reintroduced into the intended market
May affect demand for other broadcasts intended for that market
|
Free-to-Air: ; May increase or decrease advertising income in the intended market if the unauthorized retransmissions are reintroduced into the intended market and audience size/ratings decreases as viewers shift to viewing unauthorized broadcasts
May increase or decrease advertising income in the external market
May increase or decrease demand for advertising depending on whether advertising fees change based on increased viewership and whether ads are removed or replaced
Paid: May affect revenue (advertising and subscription) of paid broadcasters in the external market
None in the intended market, unless unauthorized retransmissions are reintroduced into the intended market
May affect revenue for other free and pay broadcasts intended for that market and for rights sales
|
*based on signal use in external market; if signal is reintroduced into the originating market, then intended market consequences apply
 Figure 3: Harm as Seen in an Analysis Tree
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