The spectra of compact sources which radiate significantly above 511 keV may be modified by the electron–positron pairs created by photon–photon collisions. The Thomson opacity due to pairs may easily exceed unity in sources such as active galactic nuclei; most of the observed luminosity is likely to be due to mildly relativistic pairs. The high-energy spectral cut-off is inversely related to source luminosity. General constraints on variability involving rest-mass to energy conversion efficiency, geometry and the effects of pairs are discussed. Spectral relativistic corrections may be large, even in an isotropic source.