Revenue Management
on
T tv
Rajkumar J(27038)
Sathyaraj R(27048)
Selvaraj A(27049)
Table of Contents
Overview: ................................................................................................................................................ 3
Background of the Company: ................................................................................................................. 4
Revenue objective of the company: ....................................................................................................... 4
Factors contributing to Revenue: ........................................................................................................... 4
Revenue Variables and Capacity constraints: ......................................................................................... 5
Revenue Variables: ............................................................................................................................. 5
Capacity constraints: ........................................................................................................................... 5
Forecasting: ............................................................................................................................................. 5
Need to Forecast and Level to Forecast: ............................................................................................ 5
Forecast can be done on the following levels: ................................................................................... 6
Seasonality and other factors that influence Forecast: .......................................................................... 6
Seasonality: ......................................................................................................................................... 6
Forecasting Method: ............................................................................................................................... 7
Pricing: .................................................................................................................................................... 7
Pricing Strategies: ............................................................................................................................... 7
Type of prices: ..................................................................................................................................... 8
Time Based Pricing: ......................................................................................................................... 8
Group Based Pricing: ....................................................................................................................... 8
Price revision method and frequencies: ................................................................................................. 8
Price elasticity and its impact: ................................................................................................................ 9
Revenue Class: ........................................................................................................................................ 9
Protections and how they maximize the revenue: ............................................................................... 10
Revenue Maximization by Optimization: .............................................................................................. 10
Optimization: ........................................................................................................................................ 11
Objective function and defining the problem: ................................................................................. 11
Solving the Problem: ......................................................................................................................... 11
Assumptions:..................................................................................................................................... 11
Optimal demand that maximizes revenue: .......................................................................................... 12
Our recommendations and rules for maximizing revenue: .................................................................. 12
Overview:
The local TV channels are gaining popularities and viewers after Tamilnadu Govt.
taken the control of the cable network in the state. After this, due to some political
interventions, the charges are reduced substantially and prove to be a good business
for the local TV channels. Also there is a problem in viewing some popular channels
and the relay is not regular for some channels. This is a great advantage to the local
channels whose relay is constant and without any interruption. These local TV
channels charge fee for showing advertisements (Spot Ad, Scroll Ad, Live programs,
Slots in a day) on their channel. Since advertisement time slot is a constraint, demand
for advertisement is high and demand for advertisement is varying with respect to
time. For example, a sponsor or a company want their program (any live program or
recorded program) to be shown at prime time. Here is a scope for revenue
management by differential pricing based on demand for lot and number of slots
available. Advertisers want to their programs/advertisement to be shown at a time
when the audience number viewing the particular channel is high. The number of
people watching television can be linked with TRP rate of that channel. High TRP
means more number of people is watching that particular program. We have tried to
forecast program effectiveness in terms Reach and Frequency of the
advertisement/program. Reach refers to how people are exposed to plan at least once.
Frequency refers to how often they are reached in a four week period. Hence
depending upon the effectiveness of advertisement, local TV channels can charge
them accordingly. We have chosen T TV channel to apply revenue management which
involves forecasting by future TRP on the basis of historical data.
Gross Rating Points=Reach x Frequency
Background of the Company:
T TV is one of the local TV channel in Trichy. It is established in 2011. It is one of the
fastest growing local channels in Trichy. T TV has popular programs such as live
shows, Samayyal Recipe, Live Choice, etc. Since the popularity of the channel is
growing at a considerable rate, it started to charge commercial advertisers based on
the advertisement effectiveness.
Revenue objective of the company:
The main objective of the company is to maximize the revenue and profit. A proper
revenue management system will enhance this objective. To make use of the variation
in the demand for time slots and try to generate additional revenue is an added
advantage for the channel. Higher the demand for time slot better revenue it should
fetch. When demand is high try to capitalize on demand for the time slots which is
possible only when your channel is preferred by audience. Since demand for time slot
is high it makes sense to protect some of the time slot for future sell and hence
opportunity to fetch better deal.
Factors contributing to Revenue:
The main source of revenue for the local television channel is advertisement. The
advertisement airing fee is basically linked with demand for time slot. The program
which is watched by more number of people will attract more advertisers and hence
demand for advertisement will be high during that particular program. Number of
people watching a program is linked with TRP of that program. Let us assume that by
forecast, TRP is going to increase in future and it has been found that channel sells
time slot one month in advance. If we protect some time slot for future dates, we can
sell some in order to fetch a better overall deal.
Channel share - Also referred to as market share. It refers to the percentage of people who
are watching a particular channel at any specified time. For instance a channel share of 40
means that 40 % of all those who were watching TV at that time were watching that
particular channel
TRP – Television Rating Point - A percentage of the target audience watching a single
program at a given point in time
Revenue Variables and Capacity constraints:
Revenue Variables:
One of our revenue variable would be the time of the advertisement depends upon
how long the advertisements run.
Another revenue variable would be number of people who are watching T TV at a
particular time which is indicated by TRP.
Capacity constraints:
Our capacity constraint would be the limited number of slots available for the
advertisements.
Forecasting:
Forecasting is more important for any revenue management system to be
implemented. Forecasting would start off with demand planning with the previous
year’s historical data and predicting the demand for the future. This will also include
the effect of seasonality into the forecasting picture.
Need to Forecast and Level to Forecast:
Forecasting helps the T TV to predict its demand to a favourable and comfortable
position and accordingly tweak prices and demand to increase its revenue. Forecasting
helps the company to equip itself to manage demand and increase in capitals. Instead
of pricing the Ad slots same for different periods of time; it can be varied to increase
the revenue. Revenue management achieves its revenue gains by applying statistical
methods to forecast for a given time horizon. In this manner, it helps the company to
manage time slots, price and Ad booking request that result in improved revenue per
time slot or day. The company can set low fares during low TRP rated programs.
To start off, most popular programs and time slots are identified and different
categories are set amongst programs. We will pick up the top programs from the
popular program list based on TRP and use it as basis for forecasting. Forecasting has
to happen at these individual program levels as well as the total number of people who
would be viewing on a particular time. Advanced bookings to bookings at the last
minute will be given a different pricing. The prices should vary accordingly to
encourage use or capitalize on popularity. Other not so popular programs can be
bundled with the scroll Ad fees or as an added feature to the most popular programs.
Forecast can be done on the following levels:



Channel/Program popularity
Time of Day/Day of Week
Seasonality/Special Events
Seasonality and other factors that influence Forecast:
Seasonality:
During vacations like summers more number of people are at home which means
more people watch television and in the summer holidays many kids will be watching
the TV, but people watch the channel which is most happening for example when
there is some election going on, any news of high significance or for that matter any
happening, people switch over to news channels. Weather, monsoon, holidays, any
special event like IPL, festival season too plays a role.
Channel Surfing - Switching between channels rapidly without settling on any
particular channel. Also people watch their favorite channels/programs but when
advertisements come they switch over to other channels for time being. This points
also to be noted.
Analysing historical TRP will only tell us if things continue to move in the same way
what future TRP may be but people watching a particular channel is very highly linked
with what program is being played. If program is liked by people TRP will go up but
since program in 2007 was different from program in 2012 if difficult to predict future
TRP.
There are many more factors that go on deciding how many people have watched that
particular channel at particular time. Each and every factor cannot be accounted; we
have tried to take into account some factors.
Forecasting Method:
Historical data of TRP is calculated. Based on historical data we try to predict the TRP
on monthly basis by removing outliers and seasonality variation and then try to take
seasonality variation into account. On historical data we apply moving average
method to forecast future TRP.
Pricing:
Pricing Strategies:
The pricing strategy is determined on the basis of



time of the day / day of the week
a special event / seasonality
popularity of the material that is being shown.
Also the prices vary based on the Ad types. Such as




Spot Ad
Scroll Ad
Live programs
Slot programs
Generally for T TV the slot rates for ad prices are different for different times of the
day. Also discounts are given for bulk airtime purchase by advertisers. Discounts are
given during less popular movies aired and prices are upped during newly released
movies.
Rates differ based on the time of movie played. The movies which are played at the
noon time will be high when compared to the movie played at late night. Same implies
to scroll Ad also. Rates also differ based on the day of the week. The movie played on a
weekend (Friday night, Saturday, Sunday) will be charged more when compared to the
weekdays.
Also when blockbuster movies are shown the ad rates get increased. The ad rates are
fixed basically on the expected viewership during the screenings. For popular
events/programs the time slots are sold almost in 1 month in advance.
Type of prices:
Differential Pricing is in the television channels. It is a method in which a product has
different prices based on
 the type of customer,
 quantity ordered,
 delivery time,
 payment terms, etc.
This is also called as discriminatory pricing or multiple pricing.
Time Based Pricing:
Differential Pricing is taken into account when determining the prices for the time
slots in between programs. It involves
 segmenting the market,
 determining fixed and variable costs,
 knowing the prices set by competitors,
 and being familiar with customers i.e. the advertisers.
Group Based Pricing:
Where the air slots are sold in lot size of l0w seconds, there group based pricing comes
into effect. Also people who become official sponsors of certain events or movies, they
get a slightly reduced price.
Price revision method and frequencies:
Prices will be revised based upon movement of TRP every 30 days. For example if due
to some reason TRP is expected to increases in near future we will revise the prices
every thirty days.
If TRP is expected to increase we can charge more and if TRP is expected to decrease
prices will be adjusted with the customer.
Price elasticity and its impact:
Price elasticity, or change in demand in response to change in price, is a measure of
how sensitive demand is to price. Some customers are very price sensitive, so changes
in price have a big impact on their demand.
Here in T TV there is no much change in demand, as it is a local channel. India is a
country where entertainment such as game show, movies, and live song request
program in mass medium attracts the people’s attention. So anything related to these
options sells as hot cakes. For Example the game show conducted in the Femina mall,
and other malls, song request program conducted as live will attract more advertisers.
They are ready to pay slightly higher rate for these programs than the other. These
slots had been sold well in advance by the TV to its advertisers. As seen the slots were
sold in advance and even when the prices were increased advertisers were willing to
pay the extra penny out of their pockets.
Revenue Class:
Defining the Revenue Class:
Revenue class for the 4 types of Ads such as
 Spot Ads,
 Scroll Ads,
 Live programs,
 Slots
are mentioned below.
A- Advertisement in morning time between 1 A.M. to 12 P.M.
B- Advertisements in afternoon time between 12 P.M. to 5 P.M.
C- Advertisement in evening time between 5 P.M. to 11 P.M.
D- Advertisement in late night time between 11 P.M. to 1 A.M.
Protections and how they maximize the revenue:
In morning not many people watch local television channels and hence TRP is found
to be low and there is not much variation too. Similar is the case for class D. Hence we
are focusing only on class B and class C.
We are applying revenue management concept only on class B and class C. Since TRP
for class A and class D is low hence demand in these classes is not much hence there is
no need to protect in class A and class D.
But demand in class B and class C is high and lot of variation is there via month hence
we will protect adequate time slot for future in order to increase the competition
among advertisers to push up the prices depending upon demand for time slot.
We can see that during summer holidays, winter exams holidays and other festive
season’s time TRP increases hence it makes sense to protect some of the time slots for
future sale.
Class C has the potential to fetch higher revenue try to protect time slot accordingly.
Revenue Maximization by Optimization:
Case I:
Here the entire slots will be sold out one month in advance.
Charge for an Ad = Rs. 10,000/30 seconds
Revenue generated = 10000*100%
=10000/lot
Yield
=10000
Case II:

Only 50 % of slot is sold one month in advance.
Charge for an Ad = Rs. 8000/30 seconds

Rest 30 % of slot is sold 20 days in advance.
Charge for an Ad = Rs. 12000/30 seconds

Rest 20% of slot is sold 10 days in advance.
Charge for an Ad = Rs. 15000/30 seconds
Revenue generated = 8000*0.5+12000*0.3+15000*0.2
= 10600/lot
Yield
= 10600
Optimization:
Objective function and defining the problem:
To forecast future TRP of the programs and the movies timings of the upcoming
months in the near future and for the summer holiday time.
Solving the Problem:
We have taken average of TRP of the programs on monthly basis and on that basis we
are trying to forecast future average TRP of subsequent months.
After knowing which month charge can be kept high and in what months demand for
time slot is less.
Assumptions:






There are variations in average monthly TRP only when there is some seasonal
changes/special events. Otherwise not much variation is observed. Hence for
September, October, November and December not much variation is expected.
Variation is observed only during the time of summer holidays
We considered only three year data to forecast future TRP.
Higher TRP means higher demand for time slot.
Protection leads to competition and hence fuelling up the prices.
As changes are seasonal, it occurs constantly for all the years.
Optimal demand that maximizes revenue:
The constraints are only at the time slots. No constraints on the demand side. Hence,,
higher the demand for a particular time slot is higher the revenue fetching for the T
TV. Increase in demand; obviously make the T TV to increase the charge for an Ad,
hence maximizing the revenue.
Our recommendations and rules for maximizing revenue:
Looking at the revenue Class A and Class D, there is no need for protection. Just keep
the selling rate at the competition will do. Otherwise, other local channels will capture
the customers and market resulting in loss of opportunity.
On the other side, focussing on Class B and Class C, TRP is high enough to charge
premium to customer. Here exist an opportunity to protect the time slots and to sell
in the future, hence by charging premium rates to the advertisers. This, protecting the
time slots and selling in near future at premium rates, will help in maximizing the
revenue.
Measure of effectiveness of the revenue management process:
Alpha = (% increase in revenue/ percentage increase in TRP)
If Alpha < 1, protection not much effective
If Alpha > 1, protection is effective
The Extent of effectiveness can be calculated by the below mentioned formula:
[{(alpha-1) of set max}/ {(alpha-1) of just above competitor}]*100
Basically comparison between my ‘alpha-1’ and that of competitor’s ‘alpha-1’