Computer Solution Of Goal Programming Problems With QM For ...

Management Science Application: Developing Television Advertising Sales Plans at NBC

The National Broadcasting Company (NBC), a subsidiary of General Electric, generated more than $4 billion in revenue in 2000 from its television network. In May the network announces its programming schedule for the broadcast year, which begins in the third week in September. Soon after that initial announcement, the network begins the sale of its inventory of advertising slots on its TV shows to advertisers. During this time advertising agencies approach the network with requests to purchase time for their clients for the year. The requests generally include a budget, the demographic audience in which the client is interested, and a desired program mix. NBC subsequently develops a sales plan consisting of a schedule of television commercials that will meet the client's requirements. The most popular commercial durations are 30 and 15 seconds, although 60- and 120-second slots are not uncommon.

After the network finalizes its programming schedule, it develops a rating forecast that projects the audience size for several demographic groupings for each airing of a show. These ratings projections are based on such factors as the strength of the show, historical ratings for a time slot, competing shows on other networks, and the performance of adjacent shows. The network then develops advertising rate cards that set the prices of advertising slots for each airing of a show. The prices vary according to the time of the year the show airs. For example, prices are high during the sweeps months of November, February, and May and are lower in January and the summer; thus prices are weighted for different weeks of the year. The sales management staff prioritizes sales requests based on the client's importance to NBC. NBC also desires to make the most profitable use of its limited inventory. It is optimal for NBC to use as little premium inventory as possible in meeting each client's request.

NBC uses a 01 integer goal programming model to develop annual advertising sales plans for individual clients. The model minimizes the amount of premium inventory assigned to a sales plan while also minimizing the penalty incurred in not meeting other goals. Goals are for inventory (i.e., airtime availability), product conflict (i.e., no two similar products should advertise on the same show), client budget constraints, showmix goals, unitmix (i.e., commercial length) goals, and weekly weighting constraints. The decision variables are 01 and indicate the number of commercials of each length aired on shows during weeks included in the sales plan. The model has enabled NBC to save millions of dollars of premium inventory while meeting customer requirements, and it has reduced the time required to develop a sales plan from 3 to 4 hours to 20 minutes. It is estimated that this model and associated planning systems increase NBC's revenue by at least $50 million per year.

Source: S. Bollapragada, et al.,"NBC Optimization Systems Increase Revenues and Productivity," Interfaces 32, no. 1 (JanuaryFebruary 2002): 4760.