Advanced Ad Optimization Raises Revenue & Reduces Costs in Television & Radio
Using Optimization Technology Can Enhance Revenue While Improving Operations in Media Applications
FTI Consulting
September 1, 2010
Bruce Benson
Senior Managing Director, Economic Consulting
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.
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 opera-tions 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 the single most important technical development in transportation man-agement since we entered the era of airline deregulation in 1979.
“Yield management” is a term that was coined by Robert Crandall, then CEO of Ameri-can Airlines. He is quoted as saying, “Yield management is the single most important technical development in transportation management since we entered the era of air-line deregulation in 1979…. The development of yield management was a key to Amer-ican Airlines’ survival in the post-deregulation environment.”
“Yield management” is now more generally called “revenue management” as it is ap-plied to other industries. This brief whitepaper introduces revenue management tech-niques available to media advertising on both the sell and buy side.