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Stochastic revenue management models for media broadcasting (RV of 2007/05/DS)

Author: Araman, Victor ; Popescu, IoanaINSEAD Area: Decision Sciences Series: Working Paper ; 2007/73/DS (revised version of 2007/05/DS) Publisher: Fontainebleau : INSEAD, 2007.Language: EnglishDescription: 45 p.Type of document: INSEAD Working Paper Online Access: Click here Abstract: An important challenge faced by media broadcasting companies is how to allocate limited advertising space between upfront contracts and the scatter market in order to maximize profits and meet contractual commitments. We develop stylized optimization models of airtime inventory planning and allocation across multiple clients under audience uncertainty. In a short-term profit maximizing setting, our results suggest that broadcasting companies should prioritize upfront clients according to marginal revenue per contracted audience unit, also known as CPM (cost per thousand viewers). For inventory planning purposes, accepted upfront market contracts can be aggregated across clients. The upfront market inventory should then be allocated to clients in proportion to contracted audience. Closed form solutions are obtained in a static setting. These results remain valid in a dynamic setting, when considering the opportunity to increase allocation by airing make-goods during the broadcasting season. Our structural results characterize the impact of contracting parameters, time and audience uncertainty on profits and inventory decisions. The results hold under general audience and scatter market profit models, as well as under service constrained models. Previous title: Stochastic revenue management models for media broadcasting (RV of 2005/43/DS) - Popescu, Ioana;Araman, Victor - 2007 - INSEAD Working Paper Next title: Media revenue management with audience uncertainty (RV of 2007/73/DS) - Araman, Victor;Popescu, Ioana - 2008 - INSEAD Working Paper
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An important challenge faced by media broadcasting companies is how to allocate limited advertising space between upfront contracts and the scatter market in order to maximize profits and meet contractual commitments. We develop stylized optimization models of airtime inventory planning and allocation across multiple clients under audience uncertainty. In a short-term profit maximizing setting, our results suggest that broadcasting companies should prioritize upfront clients according to marginal revenue per contracted audience unit, also known as CPM (cost per thousand viewers). For inventory planning purposes, accepted upfront market contracts can be aggregated across clients. The upfront market inventory should then be allocated to clients in proportion to contracted audience. Closed form solutions are obtained in a static setting. These results remain valid in a dynamic setting, when considering the opportunity to increase allocation by airing make-goods during the broadcasting season. Our structural results characterize the impact of contracting parameters, time and audience uncertainty on profits and inventory decisions. The results hold under general audience and scatter market profit models, as well as under service constrained models.

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