Revenue Maximization in the Cord-Cutting Age

Remember the days when it was necessary to carefully schedule events around watching the newest episode of your favorite show? If you do, then you’ll also remember how revolutionary DVR was when it first came out.

Thanks to TV streaming sites like Netflix and Amazon Prime Video, waiting for a new episode to air is entirely passé. However, when it comes to watching Sunday Night Football or the Grammys, recording such programs is pointless when your entire social media feed is one big spoiler alert. Still, there’s always something to be said for witnessing historic moments as they occur.

Assembling a live captive audience is arguably one of the greatest challenges facing television channels today. If they are able to successfully appeal to massive live audiences, the next challenge they face is optimizing their total revenue. Like other legacy stations, the most watched US broadcast network, CBS, receives two-thirds of their total revenue from advertising. In particular, advertisers are more inclined to pay a premium to ensure their ads are aired.

Finding the balance between live content and advertising is a constant puzzle for networks. If too many ads are aired, viewers will be less inclined to watch similar programs, thus leading to lower future ratings. (Think of the backlash NBC received after their 2016 Summer Olympic coverage). Yet, with too little ads aired during a given program, the broadcaster may not earn enough revenue to cover their costs.

Typically, broadcasters seek to oversell airtime to advertisers, bearing in mind the tradeoff between the expected benefit from airing the ads versus the contractual penalty payment they incur if an ad does not air.

Advertisers have traditionally turned to sports programs to target male audiences. However, according to Nielsen data from ESPN, females accounted for 41% of the audience viewing last season’s College Football Playoffs. From a sales point of view, ESPN has utilized this audience data to showcase the network’s ability to reach a diverse live audience through its sporting programs––a task which has become increasingly difficult for television networks.

The network itself has also shifted its marketing strategy to continue appealing to a diverse audience, as seen in a promotional playoff video featuring college mascots arriving at the famous Bachelor mansion. In the end of the video, Bachelor host, Chris Harrison, announced, “Trophy, I hope you’re ready. This is going to be the most dramatic playoff ever! Tune in on New Year’s Day for the College Football Playoff Semifinals at 5|4c on ESPN and The Bachelor season premiere at 8|7c on ABC.” A female-dominated game show that attracts female viewers, The Bachelor’s airtime was being used to advertise a live sporting event, reflecting the diverse Nielsen data for ESPN.

Live television continues to be one of the biggest rating drivers for networks. The latest Golden Globes nabbed a respectable 5.0 rating, though that was a decline from 2017. Meanwhile the New England Patriots and Tennessee Titans game Saturday night racked up a 7.1 for CBS. In contrast, the average nightly viewership for NBC, the top network for ratings in 2017)was only a 2.1.

The age of cord-cutting may have arrived, however, it ain’t over until the live-television-fat-lady sings.

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