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Power ratios are used by media companies to compare their revenue performance to their audience share. A ratio greater than 1.0 indicates a company is generating more revenue than expected, while a ratio below 1.0 indicates lagging sales. The ratio is calculated by dividing company revenue by the product of audience share and overall market revenue. Market research companies generate power ratio and market share reports for full formats across the industry.
A power ratio is a business ratio used by media companies, such as radio or television stations, to compare the company’s performance in terms of revenue. The higher a company’s Power Index, the greater that company’s ability to generate revenue relative to its market share of audience members. Company executives use power ratios to track and report trends in sales, compare the company’s operation with other companies in the same location, and evaluate the company for a possible purchase. To calculate a power ratio, the company must first determine its audience share, the percentage of viewers, listeners, or users who tune in or use that company’s services. Once audience share is known, executives compare the company’s revenue to total market revenue to determine if the company is generating the expected amount of revenue, given its audience share.
When a business gets a power ratio of 1.0, they are producing the amount of revenue one would expect from their audience share. A power ratio greater than 1.0 means that the company is producing revenue at a level that exceeds expectations. For example, a company with a power ratio of 1.5 is generating 50 percent more revenue than expected based on its market share. Power ratios below 1.0 indicate lagging sales and lackluster earning potential.
Media companies calculate a power ratio by dividing company revenue by the product of audience share and overall market revenue. For example, the radio station WLST determines that it attracts 30 percent of rock music listeners. WLST’s revenue in the most recent quarter was $400,000 United States Dollars (USD), with total market revenue for the rock venue at $1 million. Under the power ratio method, the company multiplies audience share by market revenue, yielding a value of $300,000. Dividing the $400,000 in company revenue by the $300,000 yields a power ratio of 1.33.
Market research companies generate power ratio and market share reports for full formats across the industry. These reports indicate the relative strength of individual market segments. Research companies can calculate audience participation through surveys, journals, and polls. Companies also collect data electronically and through software programs. One company that monitors TV audiences globally is AGB Nielsen Media Research, which uses a microphone to pick up barely audible embedded tones in broadcasts to track TV viewing.
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