ADVANCED AD OPTIMIZA- TION RAISES REVENUE AND REDUCES COSTS IN TELE- VISION AND RADIO

Transcription

1 ADVANCED AD OPTIMIZA- TION RAISES REVENUE AND REDUCES COSTS IN TELE- VISION AND RADIO FORENSIC AND LITIGATION CONSULTING CORPORATE FINANCE/ RESTRUCTURING ECONOMIC CONSULTING TECHNOLOGY STRATEGIC COMMUNICATIONS REAL ESTATE ADVISORY USING OPTIMIZATION TECHNOLOGY CAN ENHANCE REVENUE WHILE IMPROVING OPERATIONS IN MEDIA APPLICATIONS Many media companies schedule ads using simple first fit algorithms, or even schedule by hand, leading to non-optimal use of inventory. By using Revenue Management technologies pioneered by the airline industry, inventory pricing and utilization can be significantly improved, leading to increased revenue.

2 ADVANCED AD OPTIMIZATION RAISES REVENUE AND REDUCES COSTS IN TELEVISION AND RADIO Yield management is the single most important technical development in transportation management since we entered the era of airline deregulation in Anyone who has been surprised by a last minute price change when booking an airline seat has experienced price-optimization in action. Faced with perishable inventory, fluctuating demand, and a shifting competitive landscape following deregulation, the industry was hard pressed to price seating and control inventory more efficiently. In response, the air-lines developed yield management, a set of techniques using operations research technology to optimally set prices and control inventory. This concern is probably familiar to any TV or radio executive trying to set ad pricing in a broadcast schedule in the face of changing demand. Yield management is a term that was coined by Robert Crandall, then CEO of American Airlines. He is quoted as saying, Yield management is the single most important technical development in transportation management since we entered the era of airline deregulation in The development of yield management was a key to American Airlines survival in the post-deregulation environment. Yield management is now more generally called revenue management as it is applied to other industries. This brief whitepaper introduces revenue management techniques available to media advertising on both the sell and buy side. Media Ad Sales Television and radio ads are typically sold either in bulk, during the upfront, or a-lacarte in the scatter market. For television, the upfront starts in the spring, after the fall lineup is announced, whereas the radio upfront generally starts in January. Because the ratings for new shows are not established, and due to bulk buying, upfront prices are generally lower than scatter market prices. One of the areas a revenue management system can help is with forecasting demand, as well as maintaining inventory set aside to get a better price later in the scatter market. Media buyers purchase a placement for their spot based on the number of impressions it will deliver in the demographic they want to reach. These and other criteria, such as the time of day (day-part), day of week, etc. go into making the order. Media organizations fill orders by assigning spots to inventory, often by hand. The first slot found that meets the requirements of the order is selected, and scheduling may be influenced by the personal bias of the account executive. Simple automated scheduling programs use a similar heuristic algorithm. However, placement using this method, while satisfying the advertiser requirements, may not be the optimal placement for the seller. Considering overall demand for various programming, day-parts, day of week, pod, pod position, etc., some slots are more valuable than others. Optimization for Media A revenue management system applying operations research algorithms, in contrast, conceptually throws all available ads to be scheduled into the air every time it is run. Of course, this approach takes into account inventory already committed to advertisers in certain shows and day-parts. The system deter-mines the best placement for each, considering mil-lions of scenarios, while assuring that placement meets each advertiser s criteria. Each order is satisfied with the least displacement, leaving maximum inventory for later sale. So how much benefit are we really talking about? Most media optimization vendors speak of percentage revenue gains in the range of 2-15%. But these percentages assume that an organization is good at manual pricing and ad placement. Results could be significantly better if they are not. FTI CONSULTING ADVANCED AD OPTIMIZATION RAISES REVENUE AND REDUCES COSTS IN TELEVISION AND RADIO 2

3 Applications of Technology A revenue management system applying operations research algorithms, in contrast, conceptually throws all available ads to be scheduled into the air every time it is run. Of course, this approach takes into account inventory already committed to advertisers in certain shows and day-parts. The system deter-mines the best placement for each, considering mil-lions of scenarios, while assuring that placement meets each advertiser s criteria. Each order is satisfied with the least displacement, leaving maximum inventory for later sale. So how much benefit are we really talking about? Most media optimization vendors speak of percentage revenue gains in the range of 2-15%. But these percentages assume that an organization is good at manual pricing and ad placement. Results could be significantly better if they are not. Deal Planning Many organizations still produce deal plans by hand. Given the number of variables involved, such as exclusions, GRP/impression targets, and inventory availability, this is rapidly becoming impossible. In addition, the plans built by hand do not optimally use inventory. An ad is generally placed in the first avail-able slot, as opposed to the best possible spot considering the entire inventory and other demand. Producing plans manually is also time-consuming and often forces discounting to fit the overall plan to the advertiser s budget. Optimization technology allows ideal plans to be produced in near real-time while minimizing the need to discount. The faster turnaround allows multiple plans to be prepared for the same advertiser, providing up-sell opportunities. Inventory Management Because the optimizer considers every arrangement of spots, operations always starts with an optimal schedule, greatly reducing the amount of inventory adjustments necessary. The schedule can be pre-pared well into the future, facilitating forecasting and allowing tight inventory situations to be dealt with proactively, while honoring trafficking lead-times. Rate Card Optimization The optimizer has all of the information necessary to monitor inventory pressure and adjust rates upward or downward accordingly. This can provide for automatic rate card adjustments, allowing pricing to track supply and demand more effectively than can be done manually. Promotions Optimization Many organizations pre-allocate promotions inventory. Due to the fact that audience duplication factors more in promotions, optimizing promotional and commercial allocations can improve both commercial revenues and promotional campaign effectiveness. Promotional targets can be achieved using less, or less valuable, commercial inventory. Fair and Equitable Rotation Rotation describes the mix of some element of the ad buy. It can combine a mix of dayparts, calendar days, programs, or demographics. In radio applications, rotation is particularly important. An ad buyer may buy 10 major markets. Within each of the markets, he or she expects that the ads will be placed on a fair mix of the eligible stations. For example, in an ad buy of the demographic, the buyer will expect its ads to be run on a mix of pop, talk, news, and religious stations. Too little or too much of any one format, and the customer is dissatisfied. Optimization can consider the rotation dimensions along with all other considerations inclusions, exclusions, GRP/impression targets, etc. in producing the optimal schedule. FTI CONSULTING ADVANCED AD OPTIMIZATION RAISES REVENUE AND REDUCES COSTS IN TELEVISION AND RADIO 3

4 Digital The applications above can be applied equally to internet and mobile advertising. Additionally, since supply is more variable in digital media sales, supply side forecasting is a critical added dimension com-pared to linear media sales. A number of products apply revenue management to digital ads. The promise of the technology for large media companies is to be able to optimize integrated deal plans across multiple distribution channels. Buy Side Applications Up until now, we ve been discussing sell-side applications of revenue management, and systems in production today are on the sell side. But now, with re-turn path data becoming available from set-top boxes and the internet, ad buy decisions can be made far more precisely than with only panel-driven data. The question is how to manage the complexity, and that s where optimization comes in. Feeding the return path data into a properly programmed revenue management system allows ad buys to be optimized for price, demographic, programming, and even creative effectiveness. In addition, buys can be optimized across distribution channels, providing for efficient cross-channel campaigns. Conclusion Optimization projects typically take on the order of six to twelve months to implement and for a medium sized company, the ROI is achieved in a matter of months. The new system replaces the existing scheduling software (when scheduling is manually done, systems implementations can be far cheaper). Most of the effort is in tuning the algorithms needed to implement the organization s scheduling business rules, along with interfaces to legacy systems. Once in production, only occasional tweaks are needed except when major changes occur, such as television moving to commercial ratings several years ago. Revenue management is now a mature technology, driving revenues in many diverse industries. It s surprising that it s taken so long to catch on in media applications. Yet given the complexity of ad pricing, the growing spot market, and the uplift in revenue, we expect interest in these products to grow. FTI CONSULTING ADVANCED AD OPTIMIZATION RAISES REVENUE AND REDUCES COSTS IN TELEVISION AND RADIO 4

5 CONTACT: Dave Garland Managing Director, Media and Entertainment FTI Consulting (office) Bruce Benson Senior Managing Director, Media and Entertainment FTI Consulting (office) About FTI Consulting FTI Consulting, Inc. is a global business advisory firm dedicated to helping organizations protect and enhance enterprise value in an increasingly complex legal, regulatory and economic environment. With more than 3,700 employees located in 26 countries, FTI Consulting professionals work closely with clients to anticipate, illuminate and overcome complex business challenges in areas such as investigations, litigation, mergers and acquisitions, regulatory issues, reputation management and restructuring. The company generated $1.5 billion in revenues during fiscal year fticonsulting.com FTI Consulting, Inc., All rights reserved. FTI CONSULTING ADVANCED AD OPTIMIZATION RAISES REVENUE AND REDUCES COSTS IN TELEVISION AND RADIO 5