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Media Revenue Management with Audience Uncertainty: Balancing Upfront and Spot Market Sales

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  • Victor F. Araman

    () (Information, Operations, and Management Sciences, Stern School of Business, New York University, New York, New York 10012, and Suliman S. Olayan School of Business, American University of Beirut, Beirut, Lebanon)

  • Ioana Popescu

    () (Decision Science Area, INSEAD, Singapore 138676, Singapore)

Abstract

An important challenge faced by media broadcasting companies is how to allocate limited advertising space between upfront (forward) contracts and the spot market (referred to in advertising as the scatter market) to maximize profits and meet contractual commitments. We develop stylized optimization models of airtime capacity planning and allocation across multiple clients under audience uncertainty. In a short-term profit maximizing setting, our results provide insight for capacity planning decisions upfront and during the broadcasting season. Our results suggest that broadcasting companies should prioritize upfront clients according to marginal revenue per audience unit. We find that accepted upfront market contracts can be aggregated across clients and served in proportion to the audience demanded. 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 capacity decisions. The results hold under general audience and spot market profit models. Overall, we find that ignoring audience uncertainty can have a significant cost for media capacity planning and allocation.

Suggested Citation

  • Victor F. Araman & Ioana Popescu, 2010. "Media Revenue Management with Audience Uncertainty: Balancing Upfront and Spot Market Sales," Manufacturing & Service Operations Management, INFORMS, vol. 12(2), pages 190-212, December.
  • Handle: RePEc:inm:ormsom:v:12:y:2010:i:2:p:190-212
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    File URL: http://dx.doi.org/10.1287/msom.1090.0262
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    References listed on IDEAS

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    Cited by:

    1. Giovanni Giallombardo & Giovanna Miglionico & Houyuan Jiang, 2015. "New Reformulations for the Conflict Resolution Problem in the Scheduling of Television Commercials," Working Papers 2015/03, Cambridge Judge Business School, University of Cambridge.
    2. Liu, Bin & Ma, Xindi & Zhang, Rong, 2014. "Joint decision on pricing and advertising for competing retailers under emergency purchasing," Economic Modelling, Elsevier, vol. 39(C), pages 257-264.
    3. Zhengping Wu & Wanshan Zhu & Pascale Crama, 2011. "The Newsvendor Problem with Advertising Revenue," Manufacturing & Service Operations Management, INFORMS, vol. 13(3), pages 281-296, July.
    4. Mihai Banciu & Esther Gal-Or & Prakash Mirchandani, 2010. "Bundling Strategies When Products Are Vertically Differentiated and Capacities Are Limited," Management Science, INFORMS, vol. 56(12), pages 2207-2223, December.

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