What can Television Networks Learn from Search Engines? How to Select, Price, and Order Ads to Maximize Advertiser Welfare

Television advertising revenues are falling after years of growth due, in part, to digital video recorder proliferation. We consider the television network‟s problem of how optimally to select, price, and order advertisements in order to maximize audience value. We propose that television networks should shift from managing and selling time to managing and selling viewer attention in order to eliminate negative externalities among advertisers within a break. We show that there is no optimal advertisement ordering heuristic when the viewing audience contains multiple segments. We propose the Audience Value Maximization Algorithm (AVMA), a computationally feasible second-best solution that considers many possible advertisement orderings within a dynamic programming framework. AVMA can be extended to accommodate advance selling, audience bundling, and branded entertainment. 1 Assistant Professor, Computer Science, Viterbi School of Engineering, University of Southern California. [email protected]. http://www-rcf.usc.edu/~dkempe/ 2 Assistant Professor, Fuqua School of Business, Duke University. [email protected]. http://kennethcwilbur.com