TV Ad Sales has changed dramatically in the last decade. It has gone from an environment where broadcast and cable advertising supply (impressions) were growing every quarter.
Ad Sales’ job was to keep up with the supply and sell, sell, sell. It wasn’t a strategic endeavor, it was a hustle. The more ad dollars that you brought in, the more revenue hits the top line.
A Changing Environment
Today’s environment is different. Supply is not growing every quarter – in fact, it is shrinking quite quickly. Whether it is people cutting the cord, watching more Netflix, or just staring at their phone, consumers are watching fewer ads and as a result, supply is shrinking.
So now, we are operating in an environment with shrinking supply. And while demand for TV is also shrinking, it is shrinking less quickly than the supply. So if we apply the old tactics of simply chasing more ad dollars, instead of those dollars consuming the incremental supply, they are now simply replacing other ad dollars. It no longer hits the top line revenue because you are figuratively stealing from Peter to pay Paul.
So what do we do now?
We need to think of our ad impressions supply in terms of what it really is: finite inventory that needs to be strategically managed. In addition, ad inventory is also perishable. Every day that goes by, ad units air. If those units are not maximized, the opportunity is lost.
We need to pivot from a culture of chasing sales to a culture of maximizing inventory, just like the airlines and hotels.
Yield is a metric that normalizes ad revenue performance for the growing and shrinking of supply. It is a measure of how effective a company is at monetizing its impressions.
Yield is similar to pricing (CPM) except that it includes everything that contributes to revenue: Direct Response, Inventory Management, ADUs, and the list goes on.
Maximizing yield will maximize your ad revenue – plain and simple.
What are the most important strategies to drive yield?
1. Decide how much revenue “to take” in the Upfront
Relative to the Scatter market, the Upfront offers high volume to advertisers at a discount. Advertisers commit to spend a large dollar amount over the course of a full year and get a 15% to 30% discount compared to what they would pay in the scatter market. It is like Costco for TV ads.
The more that networks “take” – the more dollars they have on their books at the start of the Broadcast year. However, if you take too much, you won’t be able to capitalize on the lucrative scatter market.
This is a classic risk-reward equation.
Sell as much as you can in the Upfront and you get two benefits:
- You will minimize the downside revenue risk, in the circumstance that the scatter market is weak.
- You will have much greater forecastability. Management will know with accuracy where revenue is going to land. For companies that report to Wall Street, predictability can be more important than reporting a big number.
There is a downside, however.
Take too much in the Upfront market, and you lose the opportunity to play in scatter. As a result, your revenue will be much lower than it could have been.
Properly doing the math, running the scenarios, and understanding the risk-to-reward equation will allow management to make effective decisions.
Note: I put the words “take” in quotation marks because the advertising does need to be sold through. It isn’t quite as simple as “taking” the money.
2. Give Direct Response the right amount of inventory in the right places
Contrary to long-held beliefs, National advertising is not always higher priced than Direct Response. It is no longer true that selling more National advertising is better allowing the inventory to flow to Direct Response.
To drive yield, the highest priced ad unit should always win. National or Direct Response – it doesn’t matter.
There are a few things to keep in mind when comparing National vs. DR.
- Direct Response teams sell on a Unit Rate and National on a CPM. Convert one to the other to make a proper comparison.
- National teams sell with a sales bump, so unit rates appear higher by 10 to 20 percent. Adjust appropriately to take this into account.
Where the decision-making gets complex is in the dynamic nature of Direct Response pricing. The more inventory that DR gets, the lower their pricing drops. It can even fall off a cliff, depending on the network and their list of advertisers.
Grow yield and revenue by optimally allocating inventory between DR and National. Allocate just enough inventory to DR to capture the advertisers that are higher priced than National. Stop as soon as the DR price drops to the same level as the National alternative.
Clearly, this is easier said than done. Actively managing and measuring at a granular level is the way to get there.
3. Guarantee your advertisers on the right demographics
The demographic that your advertisers buy on has a significant impact on yield. The more that your sold guarantees align with the demos that your networks deliver, the higher the yield.
This is particularly true for the Upfront because advertisers lock in their demos for multiple years. Upfront decisions that we make today have a big impact on yield in future years. There is a very real ripple effect.
As an example, let’s consider the premise that the age of your audience is getting older. If you sell on young demos like P18-34 in the Upfront, you can price it correctly in the first year by factoring in all of the older impressions.
However, in future years, the Upfront price increase (also knows as Rate of Change) is based on the guaranteed demo. So, if your audience continues to get older, each ad unit earns less revenue despite the rate of change increase. It is a complex effect but has a very meaningful impact.
The more than you can be selective about your advertisers and their guaranteed demos, the higher your yield will be.
In a world with shrinking supply, maximizing the yield on inventory takes precedence over chasing sales. The strategy is more complex, but the impact of effective decision-making is significant.
To achieve success in the three areas that I highlighted above, TV companies need:
- An aptitude for the math and analysis required to model the scenarios
- The discipline to follow through on strategies counter to traditional methods
- An Ad Sales team that is willing to pivot their thinking and execution
This includes turning away money in the Upfront, allowing DR to take more inventory, and saying no to advertisers who buy on the wrong demos.
Chief Revenue Officer
Michael Gross is responsible for driving revenue growth for all of RSG Media’s solution platforms: Rights, Audience, and Advertising. He has deep media and technology expertise, having run Revenue Strategy & Analytics at Discovery Inc., and prior to that, management consulting with Ernst & Young.