The Rate Card Game Is About As Schizo as They Come

Cable World,  Feb 24, 2003  

• E-mail
• Print
• Link

Byline: ANDREA FIGLER

Imagine John Nash, the schizophrenic mathematician depicted in A Beautiful Mind, tediously calculating prices for local ad time. As he scans grid after grid, he meticulously selects which aspects of game theory might best be used to find the ad rate that maximizes profit for the local cable system.

OK, so maybe creating a rate card isn't that complex. But it's sufficiently complicated so as to render many a sales manager schizophrenic at times. Rate formulas include demand, cost per points, ratings, inventory, demographics, geography, grids and more. Not only do the formulas differ greatly, so does the way in which rate cards are used. Some use them as a strict guideline. Others treat them as an afterthought.

Jim Birschbach, president of Birschbach Media Sales and Marketing, helped bring one specific rate formula - the Drag theory - to cable. The Drag theory, developed by radio execs in the 1960s, helps a cable operator find the lowest average rate for every spot that will make the system's budget if every spot sells out. It also does the opposite, calculating the highest rate to charge for spots in high demand.

Todd Stewart, VP of ad sales for Charter Media's Southeast region, uses this theory religiously. Stewart sets up four grids. The lowest grid, the fourth, is any airtime that is 35% or less sold out. The top grid is airtime that sells out 70% to 100%. Grid three (35% to 50%) is the open rate for all inventory. If a network spot moves into grid two, a premium is attached. If the airtime makes grid one, that price jumps 50% above grid three's price.

Every four to ten weeks, Stewart adjusts the grids. He also pushes his account execs to use the grids to sell annual contracts, which help create demand for inventory by narrowing supply.

"I definitely don't want to pretend that we're in the A Beautiful Mind status," he says. "But we do obviously use formulas to make it easy to apply rates to a multiple network and multiple zone area."

Others steer clear of using rate cards as a sales tool. "You have to make the sale before you get into rates," says Ronald Pancratz, VP of advertising for Cable One. "I would also suggest that if a rate card is used as a sales tool, that's a mistake."

It's up to account execs to sell the value of cable, argues Pancratz, whose system managers change rates twice a year based on demand.

Selling cable advertising, after all, is all about the art of negotiation, says Lourdes Marquez, SVP and director of local broadcast for Horizon Media. On the other hand, media buyers tend to favor rates set by cable interconnects because they compete directly with broadcast stations, using mathematical equations that set the cost per point, she adds. Michael Hills, general sales manager for the Pittsburgh interconnect, completely revamped the rate card to compete with broadcast.

At the end of each year, Hills tediously scans every hour for every network and averages that hour's rating for the entire year. Then he picks out which breaks are fixed. After that, he factors in the price listed by SQAD, a quarterly report on broadcast's costs per point, as well as the competitive market cost per point for every spot.

Account execs "don't have to negotiate rates as much because the work of the rate card is built on what the market can bear," he says.

In the end, how a rate card is set and used depends on the cable system. With thousands of systems nationwide, no wonder the task of deciphering a rate card seems, well, schizophrenic.

Andrea Figler's local ad sales column appears monthly. Send success stories, ideas and comments to afigler@mediacentral.com.

COPYRIGHT 2003 Access Intelligence, LLC
COPYRIGHT 2008 Gale, Cengage Learning