Inventory Trade-off Decisions – Are you making the right one?

Revenue, Makegoods, Promos – As a TV or radio broadcaster, you are intimately familiar with these three words. They are the three core elements that make up your inventory and ultimately drive your business. They also represent the high-level trade-off decisions that you must make on an annual, weekly, or even daily basis.

Within your organization, you are faced with many conflicting decisions that need to be made when it comes to inventory trade-off decisions. Finance wants more revenue but also needs to minimize the amount of liability on the books from makegoods. Sales wants to keep their customers happy, so they make sure their clients are first in the pecking order for prime inventory and fulfilling makegoods. Programming wants more promos to advertise fresh content. However, Revenue Management sits in the middle and is ultimately accountable for making sure the overall inventory is maximized to its fullest potential.

Promos can help drive your own ratings, but that also means you are not making any actual cash for that spot. However, without promos (and the right balance of promos), your ratings will decline and your overall prices dive along with them. That’s when leveraging makegoods is essential. Those unfortunate ADUs (i.e., freebies) that you must offer up when you don’t hit your guaranteed ratings target. And we haven’t even gotten into the meat of the actual problem yet. For your revenue spots, should those be for Upfront, Scatter, or DR / preemptible buys? And should you sell to someone targeting Males 18-49 or Females 24-54? And how should you bundle your inventory for each buy so you don’t sell your premium inventory too quickly and be left with a bunch of fringe inventory that you must sell for pennies on the dollar?

Let’s assume a standard clock setup with 14 minutes of sellable / promotable inventory within an hour. In this example, you must make over 530 trade-off decisions each day (let’s just ignore the 5-hour overnight period for now and assume we’re in a world of only 30 second ads and only selling one demographic). That means almost 200,000 decisions each year, and only for one of your networks. Imagine if you owned 10 networks or 100+ stations and if you were selling across 20+ demographics? So many questions, and so many directions you can go in, but which path do you take? How do you allocate the right amount of inventory to each bucket when there’s millions of variables and many unknown outcomes? How do you allocate the right amount of inventory to each bucket without increasing risk?

Most networks contemplate these same decisions on a regular basis. What if by eliminating just one unknown, you could drastically reduce the risk of making a catastrophic decision? With more precise ratings forecast, you could bring more certainty and greater confidence to all your decisions. You could more proactively course correct and mitigate your overall liability volume while not low-balling your guaranteed impressions. In media, everything revolves around ratings, so what are you doing to manage yours?

Stay tuned for my next post to learn about what you can do to produce a forecast that not only considers historical patterns, but quickly reacts to changing internal and external factors and seamlessly blends with the latest estimates from your research team.