At Furious, we focus on helping TV sellers maximize the yield of their advertising portfolios. We’d like to unpack that concept for people who are more familiar with portfolio optimization in the context of finance.
First, let’s start by defining a portfolio in the media lens. It’s simply the aggregate of a seller’s inventory and the products and formats that inventory is offered in. You can think of each format like an asset class: in finance, we have stocks, bonds, and commodities while in media we have linear, OTT, and digital.
You don’t make the most money or manage risk by focusing on only one asset class, to the exclusion of all others. Instead, investors try to maximize the entire portfolio--finding the right asset class mix and allocation to deliver the highest risk-adjusted return. Similarly, every media seller’s obsession is (or should be) packaging and pricing that inventory in a way that maximizes their yield, or the total revenue available from their entire pool of inventory.
The best practices underpinning portfolio optimization for media and financial services are fundamentally similar, and finance principles can be instructive for TV networks and distributors. With that in mind, I thought that a primer on how media sellers should approach portfolio optimization and why it’s important--told via analogies to finance--would be useful. Here goes:
Hedge Your Bets
Fundamental tenets of investment portfolio strategy include allocation among different asset classes to modulate risk and hedge bets. This is why even investors with high risk-tolerance typically have some debt securities in their portfolios. In fact, debt is typically held in a portfolio regardless of where the investor is in their investment time horizon.
Debt investments carry less risk (and offer lower return potential) than equities, and serve to protect a portfolio from volatility. Debt provides a tentpole that generates consistent, reliable income, and people tend to hold debt even when it’s under-performing relative to other asset classes.
Rebalance Your Portfolio
Smart investors adopt asset rebalancing as a strategy to reduce the effects of market movements on the desired allocation. Asset rebalancing calls for having a target equity-to-debt ratio in your investments and periodically reconsidering the allocation in light of portfolio performance and current market factors, and adjusting it to ensure that a desired balance is maintained. So when equity has performed better than debt, you should sell some equity investments and invest the redeemed value in debt to rebalance your portfolio, and vice versa. This prevents you from taking on more risk than you had intended.
Similarly, TV sellers should be monitoring their portfolio and rebalancing their assets each year to respond to changes in demand and keep their risk in line. That calls for periodically assessing the relative contribution of each ad product category to total revenue and rebalancing their available inventory allocation to ensure that advertising clients are being well-served and the greatest total revenue is achieved during the ensuing time period.
High Price ≄ High Profit
Ultimately, you’ll maximize your yield as a seller by hedging your bets, the same way you’d maximize your holdings as a financial investor. At a high level, this means not blindly over-allocating to a shiny object just because it fetches the highest price. By selling all the addressable inventory you can, for example, you can wind up cannibalizing other valuable parts of your portfolio, such as primetime spots that lose their Nielsen eligibility if there’s no longer a critical mass of them to sell. Over-indexing on the highest-risk, highest-return asset is fundamentally not a sound strategy.
Sellers need to manage their individual “assets” (i.e., their ad products) more actively to ensure they’re optimizing the value of their portfolio, and they need to think like investors. It’s a different mindset and way of operating, but the results are worth it.