The US media market is forecasted to reach $526.4 billion this year, making it the biggest media market in the world. With such strong revenue coming in across books, cinema, games, music, newspapers, magazines and TV/video, it can be tempting to believe that media companies are exempt from the financial challenges that companies in other industries face. While it would be nice to think that your media company is safe from those risks, you probably already know that isn’t the case.
In May 2023, for example, the former powerhouse start-up Vice Media, which was once valued at $5.7 billion, filed for Chapter 11 bankruptcy. According to Money Week, Vice miscalculated the appetite for television when they launched Viceland, their channel that promised to “bring millennials back to TV.”
The media industry isn’t all that different from other industries like retail, manufacturing and automotive. With media advertising spend increasing across the board, with a predicted 6% year over year increase set for 2025, your advertising customers can often pose the biggest risks to your company. Your advertisers have a huge market to choose from when deciding where to spend their advertising budget, which means you must ensure your platform is active and helpful for them. “Your advertising customers can often pose the biggest credit risk to your company,” Yesinne Alvarez, Partnerships, Alliances & Data for Creditsafe, says. “The competition for advertising spend is high. You want to say ‘yes’ to more ads, but you still need to protect your organization.”
If you don’t understand the risks your customers pose to your company, those risks will only increase. Taking a close look at your Accounts Receivables portfolio is a fantastic way to start decreasing the risk your advertisers are opening you up to – and help boost your cash flow to boot. “By segmenting your A/R portfolio by risk, you’re able to collect low-hanging fruit,” says Scott Garger, Enterprise Credit Manager for Creditsafe. “You’re able to determine how much money is outstanding in high-risk accounts, for example, which in turn may help you predict what your bad debt may be for the year.”
When you segment your advertising portfolio by risk, you’re able to look at each segment in greater detail. Instead of wading through a massive amount of data to try and find tiny hints that suggest something’s wrong, segmenting your portfolio creates a smaller pool. You can then analyze these smaller, more specific segments and identify risks before they become much bigger problems.
Media is growing across the board. According to Forrester, US media spend is set to reach $357.3 billion, a 6% increase year over year. With companies in the retail, travel, food and beverages and automotive industries spending massive amounts on media advertising, the media industry is booming. In 2024, TV ad spend is set to hit $74.4 billion and CTV ad spend should surpass $20 billion.
Looking forward, advertising is set to become the largest category in the media industry, surpassing consumer spending and internet access by 2025. What does this mean for your business? Advertising within the media industry is a giant, with billions of dollars in ad spend your business could cash in on. But with all that action and choice amongst advertisers, you need to make smart decisions about who advertises with you and the wide-reaching impacts they can have on your business.
Even media giants aren’t immune to inflation and other risks. One recent struggle for the media industry came from employees – in 2023, the Writers Guild of America went on strike and were quickly joined by the Screen Actors Guild. The strike cost the entertainment industry an estimated $5 billion worldwide, impacting Hollywood executives and small-town productions alike. The strikes hit advertising, too: Primetime TV advertising revenue was down 11% between May to August 2023 when compared to the same time period in 2022, with late-night programing seeing an even steeper 15% decrease. The number of brands advertising on TV also went from 9,900 in 2022 to 7,200, a 3% decline.
With media being such a huge and variable industry, the risks that go along with it are just as wide-ranging. That’s why it’s so important to consistently monitor your advertisers and the risks that they can pose to you. The strikes are just one example of risks you face as a media company. With the major losses businesses experienced due to these strikes, you can’t afford to be lax when managing your accounts receivable invoices. If an advertiser is consistently paying you late, for example, you should dig deeper to figure out why. Is the company in financial trouble, or has something external caused a temporary blip in their cash flow? Should you aggressively chase for payment, renegotiate their terms, or sever the relationship altogether?
While you might think you understand the obvious risks, like late payments or even bankruptcies that would mean writing off unpaid invoices, there are less obvious risks that require a closer look. Imagine a consumer brand’s CEO is recorded saying something racist or using hate speech. If, the next week, that brand has a full-page advertisement in your publication, consumers could assume your company is okay with – or even endorses – the negative messaging from that CEO. Reputational damage is a huge risk in the media industry, and a key reason you should segment your portfolio by different risks so you can better keep an eye on your advertisers’ reputations.
So why segment your advertising customers by risk? Segmentation is an excellent way for you to gain a deeper insight into your customers. Depending on how you segment your portfolio, you could learn about how your customers access your business, why they convert, how they learn about new products or services, or even whether they have the resources to continue paying you on time.
If you don’t segment your advertising customers by risk, you could open your company up to preventable losses or other negative outcomes. If your advertising portfolio is very large, companies experiencing difficulties could get lost in the shuffle and cause your own business to suffer. These companies may start to pay invoices significantly later than usual, which puts an immediate strain on your cash flow. Adverse media also comes into play – if one of your advertisers has been participating in unethical business practices like child or forced labor, allowing them to advertise with you could be seen as support. That harms your reputation and could lead to damage to customer loyalty. Segmenting by risk score, for example, helps your business become more proactive in anticipating which accounts may pay late – or not at all. If you’re noticing a trend in late payments across the board, you can dig deeper across your segments to find out why.
“There are many benefits to segmenting the Accounts Receivable portfolio by risk class,” says Alvarez. “An immediate result could be a reduction in Days Sales Outstanding (DSO) and improvement to cash flow. If you focus your collections activity on the high-risk customers, not just the past due or largest dollar amount, you effect your cash flow and protect your company’s A/R by concentrating on the high-risk customers first.”
Segmenting your customers can also protect your business in the long term, when calculating your bad debt reserves. CECL regulations in the US require businesses to hold a bad debt reserve, or a reserve against accounts that can’t or won’t pay their invoices. “You can say, ‘I’m going to reserve 50% or even 100% of my high-risk segment.’” Alvarez says. “Or take it a step further: let’s say you’re a publication and you have digital ad sales, print ad sales and social media campaigns. Being able to score each of these areas by risk and prioritize your A/R means you can make strategic decisions. You can ask yourself, ‘Where am I going to invest my sales staff? Where are the collections taking longer? Where is there an opportunity to grow my business?’ I think that’s where segmentation becomes a strategic tool.”
Dividing your advertising customers by sales channel gives you a deeper insight into their purchasing behaviors. From there, you can tailor your strategies. For example, if through this segmentation you learn that 80% of your advertising customers are primarily interested in digital advertising rather than print, you can dedicate more time and resources to your digital advertising. On the flip side, it gives you an idea of what print advertising is doing for your business. Are your print advertising customers looking for something different from you? Are those customers looking to reach different consumers?
Normally, you’ll look at your advertiser’s credit risk and payment behaviors before you do business with them or allow them to advertise with you. But if an advertising agency is representing a company looking to advertise with you, the process becomes more complex. Rather than simply looking into the credit risk of the company running the ads, you’ll need to also look into the agency’s credit risk. Segmenting between agency customers and direct advertising customers can give you further insight into how your business is working with your advertisers. If you use an agency for lead generation or advertising, consider how many of your advertising customers are coming to you via an agency, and which are reaching you directly. Segmenting your portfolio in this way can help you understand where to focus your efforts – if you aren’t getting the results you expect to see from your agency, you’ll know that something need to change.
Since consumers arrived on the internet, the saying “print is dead” has been thrown around by media companies and advertisers alike. But most media companies know that’s not true – it just depends on what you’re looking for. Segmenting your portfolio by ad format helps you focus your efforts. Which companies are using video advertising versus static digital ads? Which are firmly print advertising? What combinations are your advertisers using and how do they seem to be working for them? If you find, for example, that companies pushing largely video advertising are consistently paying you late, you can allocate more resources to chasing their A/R invoices for payment or enforce stricter terms on your video advertising.
Your sales team can be your secret weapon – or the beginning of the end. By segmenting your portfolio by sales reps that close the deals, you’re better able to understand who’s working for you and how they’re pushing your business forward. If you find that a large portion of sales are being closed by one salesperson, for example, you can speak to them and find out what they’re doing differently to their coworkers. Of course, this type of segmentation works both ways – if you find that you have a salesperson or team who are consistently selling to high risk or poor paying customers, you can alert stakeholders and make recommendations to re-focus your sales efforts on a different customer profile or industry.
When you’re thinking about segmenting your portfolio by risk, segmenting by risk score and payment behaviors is a key view to keep your company protected. When you have longstanding relationships with vendors and customers, you begin to get a sense of who is reliable and who isn’t. But that’s not enough when it comes to protecting your company from unnecessary risk. By looking at each company’s business credit report, you can determine which companies pose the most and least risk to your cash flow. Look at data like Days Beyond Terms, or DBT – are your customers in the habit of paying invoices late? Segmenting your portfolio based on these behaviors allows you to focus in on your riskiest customers and determine whether those companies are continuing to serve your business. In addition, your low-risk customers act as “low hanging fruit” to boost or stabilize your cash flow.
Segmenting by sales volume lets you keep track of who your most valuable customers are. You’ll be able to easily see how much revenue each advertiser is bringing in for your business and whether that changes. If, for example, you have consistently large sales from an advertiser that one month has dramatically decreased, it could be a sign that that advertiser is experiencing financial difficulties and the risk of working with them is increasing. On the other hand, if your smaller-volume sales begin to increase, those companies could be improving financially and decreasing in risk.
Learning more about the companies you’re doing business with is always a good idea. By segmenting your advertising portfolio by company size, you’ll see where most of your revenue comes from. You can target new sales from there. For example, if you’ve been aiming for advertising from large enterprises, but find that most of your business comes from SME ads, you might consider changing your strategy so that you can most effectively sell to where your business is booming, or change your strategy so your advertisers better align with your goals.
Additionally, keeping an eye on the size of the companies you’re selling to can give you further hints about whether companies are increasing in risk. If you notice a company’s employees are shrinking, they could be firing workers to try and get their cash flow back on track.
A major issue companies across the board are facing is the impacts of political tension and war across the world. These conflicts can impact businesses, either directly through suppliers and customers being displaced, or indirectly through political and reputational damages to companies based on their location. Segmenting your portfolio according to geography lets you keep a close eye on your customers in areas that might be considered high-risk. If new sanctions or restrictions come into effect, you’ll be able to act quickly and remove any impacted customers before they damage your reputation or cost you in hefty fines.
Segmenting your portfolio by risk will allow you to get a quick sense of risk on several different levels. You’ll be able to understand which customers, or groups of customers, are more likely to become delinquent or unreliable – what more could you want?
But it’s not as easy as deciding you should segment by risk and then doing so. As a media company looking to segment your portfolio by risk, you should do it thoughtfully and according to your own individual needs.
Let’s look at a few questions you should be asking yourself before you segment your advertising customers by risk.
Look at what your company already has in software and systems before you segment your portfolio by risk. If your existing system is up to the task, the process could be straightforward and simple. If not, you should think about what type of system would best suit your needs going forward.
It sounds obvious, but before you can analyze data, you need data to analyze. Consider where you’re currently pulling data from and how much of it there is. If you don’t have updated, accurate information about your customers and their credit reports, you won’t be able to accurately spot trends. Beyond that, you should have access to data about your customers and their business practices: have they been involved in any legal trouble recently, or are they being adversely represented in the media?
“There are very sophisticated and complicated risk models that arrive at a risk score,” Alvarez says, “and there are also simple and yet very effective data elements to arrive at a risk score. Data elements to consider can be Days Beyond Terms, industry trade group data, public record information and Credit Bureau data. From there, you can combine your credit risk score with other company elements to ultimately segment the A/R by risk class and any other meaningful category that can give you customer behavior insights.”
Segmenting your portfolio by risk can be a game changer for your company, but if you aren’t precise and thoughtful about how you do it, it won’t have any real impact on your business. Think about what information you’d like to have, or what you’re worried about. For example, if you’ve noticed recently that several customers are paying invoices late, you might want to segment by payment behavior to examine who those customers are and why they aren’t paying you on time.
Sometimes, you can’t see the forest for the trees. If you’re too close to the situation, you could miss little details that add up. Or it might be that your portfolio is simply too big for you to manually analyze each customer or supplier individually. In either case, it could be a good idea to have a third party analyze and assess risk for your portfolio overall. Setting up alerts for when a company’s credit profile or risk score changes, for example, can give you peace of mind that you won’t miss any potential problems that could be on the horizon.
It can be just as helpful to think about what you don’t have as it is to think about what you do have. While you’re thinking about the types of data you need, the segments you’d like to focus on, the questions you’d like answered by this segmentation and anything else that’s important to your business, you should also think about how you can most effectively reach those answers. Do you use software that will make the segmentation process easier? Do you need access to more data than you currently have?
Alvarez adds that, often, your own team is an important tool that could be lacking when you try to segment by risk. “You need internal buy-in,” she explains. “Do you need your marketing team to help you segment by customer type before you can segment? Can you tie that into your accounts receivable ledger?” Think about your team and their cooperation and structures. Will they be able to work collaboratively to start the segmentation process?