Variable Margins on Variable Revenues | Vose Software

ModelRisk example · General techniques

Profits from Expanding Investments (TV Series)

Where does a TV studio's profit come from? A few pilots become series, a few series sell abroad, and they pay for the rest.

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From the model’s saved run

Profit from this year's slate

The profit of this year's pilots and of every season of the series they lead to.

MeasureUnitValue
Mean profitUS$k3,562
Chance of a profit below US$2 millionprobability21.7%
MeasureUnit10th pctMedian90th pctMean
ProfitUS$k1,4293,2696,0513,562
Profit — total and by source

The business question

A TV studio makes between 28 and 39 pilots a year. Each pilot earns its own revenue at a thin margin. A pilot has a 35% chance of becoming a local series, which then runs for one to five seasons: one season is the most likely, five the least.

A local series has a 20% chance of being sold to a US network as well, which pays much more per season at a much higher margin. Every pilot and every season has its own revenue and margin. The question is the profit from this year's slate, and how much of it rests on the handful of series that sell to the US.

Who it is for
Analysts of portfolios in which a few successes pay for many small bets: media, drug development, venture capital, exploration.
Main outputs
The slate's profit at P10 / P50 / P90 · the profit from pilots, local broadcasts and US sales · the chance of a year without a US sale and the profit in such a year.

How the model works

Three sheets after this one, read from left to right. Each one feeds the next.

  1. Inputs sheet

    The number of pilots (a PERT rounded to whole pilots), the chances that a pilot becomes a series and that a series sells to the US, and PERT ranges for each revenue and margin.

  2. Slate sheet

    VoseBinomial turns pilots into series and series into US sales. VoseAggregateMC adds up the seasons of a random number of series, each drawn from the seasons distribution. VoseSumProduct adds up revenue × margin over a random number of pilots or seasons, each with its own revenue and margin.

  3. Results sheet

    The profit's range, the mean profit from pilots, local broadcasts and US sales, and the profit in a year in which no series sells to the US.

ModelRisk techniques

  • Random sums VoseAggregateMC, VoseSumProduct
  • Distribution objects VosePERTObject
  • PERT rounded to whole pilots

Find similar models

Product

The results in detail

Where the profit comes from

Mean profit from each source, and its share of the mean total.

SourceUnitMeanShare
PilotsUS$k2898%
Local broadcastsUS$k1,05230%
US salesUS$k2,22162%

A year without a US sale

What the slate makes when none of its series sells to the US.

MeasureUnitValue
Chance that no series sells to the USprobability9.4%
Mean profit over all yearsUS$k3,562
Mean of profit × (no US sale)US$k111
Mean profit in a year without a US saleUS$k1,184

What moves the profit

Lowest and highest mean profit over ten equal groups of each input (VoseSimSensitivityMean).

What moves the profit (US$k)
The ranking as a table 4 inputs
Input (ranked by influence)Lowest meanHighest meanRank
Profit from US sales1,1997,3051
Profit from local broadcasts1,9695,3582
Number of new pilots3,2143,9653
Profit from pilots3,3043,9014

How to read these results

  • Pilots barely pay for themselves; the profit comes from the few that become series, and above all from the few series that sell to the US: about two series in ten, but about 60% of the mean profit.
  • So the profit is wide and skewed: the 90th percentile is roughly four times the 10th. A year in which no series sells to the US, about one in ten, makes about a third of an average year.
  • The counts are random at every step: how many pilots become series, how many of those sell, how many seasons each runs. VoseAggregateMC and VoseSumProduct add up a random number of draws, which is why there is no table of series here.
  • To judge a slate, look at the whole distribution, not at one most likely series: the business is a portfolio of long shots.

See it move. Open the workbook, change an input on the Inputs sheet and run the simulation: every table and chart on this page updates in Excel.

Inputs and assumptions

Every assumption in the model, with its uncertainty and where it comes from. The figures are illustrative.

Pilots 3 inputs

How many pilots the studio makes this year, and what each earns.

AssumptionUnitUncertaintyLowMost likelyHigh
Number of new pilotsEach whole number from 28 to 39 can happen; 32 is the most likely.pilotsPERT, rounded283239
Revenue per pilotEach pilot draws its own.US$kPERT · drawn elsewhere120150250
Profit margin on a pilotPilots barely pay for themselves.of revenuePERT · drawn elsewhere1%5%12%
Series 3 inputs

What happens to a pilot that becomes a series.

AssumptionUnitUncertaintyLowMost likelyHigh
Chance that a pilot becomes a local seriesprobabilityFixed35%
Revenue per season, local broadcastEach season draws its own.US$kPERT · drawn elsewhere120150250
Profit margin on a local seasonof revenuePERT · drawn elsewhere15%25%45%
US sales 3 inputs

A local series that is also sold to a US network.

AssumptionUnitUncertaintyLowMost likelyHigh
Chance that a local series is sold to the USprobabilityFixed20%
Revenue per season from the USEach season draws its own.US$kPERT · drawn elsewhere2405501,350
Profit margin on US revenueof revenuePERT · drawn elsewhere65%70%85%

Units and conventions

Money
US$ thousand (US$k).
Revenue and margin
Per pilot and per season; profit = revenue × margin.
Local broadcasts
Every series is broadcast locally, including those also sold to the US.

Key assumptions and limitations

Independence
Every pilot and every season has its own revenue and margin; a series' seasons are independent of whether it sells to the US.
One year's slate
The profit of this year's pilots and all the seasons of the series they lead to, not discounted.
Data
The studio is invented for this example; the figures are those of ModelRisk's earlier TV Series Profits example.

How to use it

  1. Change the numbers of pilots, the conversion chances, revenues and margins on the Inputs sheet.
  2. Change the seasons distribution on the Slate sheet.
  3. Run a simulation from the ModelRisk ribbon (10,000 samples with a fixed seed are set).
  4. Look at how the profit depends on the US sales before deciding how many pilots to make.

The tornado chart fills in after a simulation with ModelRisk’s classic engine.

ModelRisk functions used

VoseBinomial
How many pilots become series, and how many series sell to the US.
VoseDiscreteObject, VoseAggregateMC
The seasons of a random number of series: the sum of that many draws from the seasons distribution.
VosePERTObject, VoseSumProduct
Revenue × margin added up over a random number of pilots or seasons, each with its own draws.
VosePERT
The number of pilots: a PERT from 27.5 to 39.5, rounded, so each whole number from 28 to 39 can happen.
VoseInput, VoseOutput
Name the number of pilots, the profit by source and the total.
VoseSimMean, VoseSimPercentile
Statistics of the simulation.
VoseSimSensitivityMean
The tornado chart: what moves the mean profit.

Further reading