Collins | Tips For Improving Your Revenue Forecasts

Back when I was responsible for distribution of a start-up cable network, my region had a reputation for great forecasting. It was always this time of year — the beginning of the fourth quarter — that my team and I would huddle in the conference room to discuss the prospects for each account in our sales area.

Mary Collins

Forecasting is a lot more complicated now. Before the explosion of mergers and acquisitions, over-the-top and time-shifted viewing, along with other disruptions, growth was the name of the game. New ownership and new technologies may also mean downward pressure on revenues.

The good news is that the technology that has given viewers (and the advertisers looking to reach them) more choices, also means new and better tools for revenue forecasting.

As an article in the current issue of MFM’s member magazine, The Financial Manager (TFM) observes, there is now a wealth of data available to create a baseline for projections, which can make forecasting more accurate and consistent.

The article was prepared by Media Audits International’s (MAI’s) Ashley Kindsvatter, director of revenue management services, and Tim Waddingham, director of client development. Using their experiences in providing retransmission consent and revenue management services to many of the industry’s TV station groups and programming networks, they identify some of the tools that can help overcome forecasting challenges.

What Makes It So Challenging?

Kindsvatter and Waddington begin by noting that one of the greatest challenges involves the length of a projection. For example, it is much easier to forecast retrans revenue for the next month than the next year. It was also a lot easier when the local cable system was the only digital video provider.

In addition to the challenge of accounting for cord-cutting, retrans revenue can be affected by considerations such as seasonal changes and outages that result from hurricanes and other natural disasters. Contract disputes may also have a negative impact on revenues.

While the article from MAI focuses on the challenges associated with forecasting retrans and other programming revenue, the same considerations can be used to improve advertising revenue forecasts.

It’s Not An Optional Exercise

Despite the many factors threatening the accuracy of a forecast, finding a way to overcome these challenges is critical. As the article’s authors observe, “When done correctly, forecasting can be a very powerful tool as historical data trending should be a factor in driving future business decisions.”

In addition to its impact on the profit and loss statement (P&L), revenue forecasting is also critical for long-term strategic planning. “Integrating company business strategies into forecasting can help refine projections,” the authors note. And, as they point out, poor forecasting may mean that future resources are not budgeted to be used where they could do the most good.

Granularity Is Key

When it comes to predicting revenue, again using retrans as the example, an accurate forecast requires more than the aggregate MSO data that the station group may receive. As Bruce Lazarus, CEO of Media Audits International observes in the article, “The Devil is in the details. System-level reporting unmasks trends that are not always visible at the MVPD-level.”

Developing programming or retrans revenue forecasts at the system level is the only way to account for such factors as seasonality, channel launches or drops, distributor consolidations, changes in tiering, and rate variances between services. It also makes it much easier to factor in business strategies, since the forecast can include projected acquisitions and divestitures as well as known rate changes.

Additionally, Kindsvatter and Waddington have found system-level forecasting can utilize a commensurate month-to-month comparison for one or more prior years. As they explain, “These historical and system-level data trends can provide retrospective insight on where previously uncovered financial inconsistences may reside, so that they may be properly addressed into the future.”

Best Practices For Projections

The article’s authors also share several of the best practices that MAI has developed in their years working with TV stations and other video programming providers. These best practices, which translate well to all forecasting exercises, include:

1. Forecast often. A forecast in the first quarter will be very different from a forecast in the third quarter. Seasonality, system drops and launches, MVPD rebranding and package restructuring are a few examples of monthly changes that can occur. Big TV events and new programming can affect viewer ratings and thus, advertising revenue.

Market factors will also have a significant impact. Merger and acquisition activity or increased competition from OTT providers may affect retrans revenues. Also, consider how specific political contests may affect spot availabilities for advertising clients. Unless forecasting models are constantly updating projections using the most recently available data, the integrity of the forecast is jeopardized.

2. Have a plan. Methodically and carefully create forecasting plans with team members and other key stakeholders. The following questions may be useful in evaluating a forecasting model:

• Are you using recent, reliable, and routinely updated data in the forecast(s)?
• Is this data the most granular that it can be?
• When there is an adjustment to the budget or payment records, does someone also update the forecasting model?
• What is the basis of the forecast — should trending off the last three months, six months or more be leveraged, and if so why?
• What other data points does the model use? Does it tie projections to remittances and is it automatically updated each month?
• What other assumptions are included? Are you forecasting with the same assumptions throughout? If so, why or why not?

3. Rely on senior-level insights. A sidebar to the article concludes saying, “The best forecasting is done with data driven, logic-based projections and managed or overseen by experienced media finance professionals with credible industry insight.”

If you would like to read more of Kindsvatter and Waddington’s observations, a copy of the September-October issue of TFM containing their article will be available on MFM’s website for the next month or so.

Explore Potential Afforded By New Technology

Lately, there has been a lot of discussion about new technologies that can make the media finance professional’s job easier. Among these are artificial intelligence and blockchain.

Given the considerable interest in blockchain expressed at MFM’s recent Media Outlook 2019 seminar, we have booked a webinar to discuss ways media organizations can use the technology. Scheduled for Thursday, Oct. 18, from 1 to 2 p.m. ET, the online event will feature a presentation from Media Outlook session panelists Prakash Santhana, managing director of Deloitte Transactions and Business Analytics and co-leader of Deloitte’s blockchain and cryptocurrency community, and Richard Taub, managing director of the Pequan Group. More information may be found on MFM’s website.

Include the Big Picture

Revenue forecasts that fail to include the latest market intelligence concerning consumer spending, technology developments, and other factors will be hamstrung at best. For this reason, MFM’s BCCA subsidiary, the media industry’s credit association, will open its upcoming Media Credit Seminar with a keynote presentation by noted macro strategist and economist Richard Hastings.

Hastings, who currently serves as Business Intelligence Analyst and Economics Advisor to the Federation of Credit and Financial Professionals, will discuss state and metro area rankings and population movements and how these trends will influence regional and local opportunities for media providers. A copy of the event’s agenda and additional information may be found at https://www.mediafinance.org/media-credit-seminar-ny.

We also welcome your suggestions and questions concerning revenue forecasting challenges. As MAI’s experts observe, “Forecasting is complex, but it is well worth the investment for media professionals if we take advantage of the data at our disposal. Because it is only as good as what we do know, it is good (when) we know a lot.”

Mary M. Collins is president and CEO of the Media Financial Management Association and its BCCA subsidiary, the media industry’s credit association. She can be reached at [email protected] and via the association’s LinkedIn, Twitter or Facebook sites.