Monday, June 13, 2016

Guest Blogger Stephan Sloan: 57 Channels and Nothing On

After the shock and awe that I believe was the initial round of the auction my expectations of the subsequent rounds are very different. 

The algorithmic alchemy resulting from the pressure between solving for the highest clearing target possible given the participation will likely have spent its influence by the end of the first round. The following rounds will decrement steadily seeking a new level of scarcity supported not by participation but rather reserve prices that cause the process to repack those stations with the highest reserves and then seek to order and select among the remaining open bids. 

I believe it unlikely that any additional stations were frozen last week after the initial round. While not completely without event I predict that fewer than 50 stations will be frozen during the rounds accomplished and scheduled for this week. 

My analysis is based upon an assumption that the algorithm will find the little pressure or few reserve prices at very high percentages of the opening bid price. In addition, I believe there is significant population of stations for which the sum of enterprise value and wind-down costs are a very small percentage of opening bid price. Observing a sample of some 1,200+ stations which I model to participate in the Reverse Auction the average reserve price is only about 15% of the opening bid. While an average of this population may be misleading given its variety of participants it does help illustrate a population of reserve prices that significantly skew towards the later rounds of the Reverse Auction. The histogram that follows present distribution of reverse prices from this sample set of stations.

So if this week feels a little boring for as extraordinary event as the Reverse Auction is, it' snot you - it's the math. Math is often boring. 

Stephan Sloan 
Director, Media Services Group