Pricing Optimization Model For Personalized

Advertisements In The Context Of Digital Television

Papakiriakopoulos Dimitris
ELectronic Trading Research UNit
tel: +308203663 fax: +308203664
dpap@aueb.gr

Lekakos George
ELectronic Trading Research UNit
tel: +308203663 fax: +308203664
glekakos@aueb.gr

Giaglis George
ELectronic Trading Research UNit
tel: +308203663 fax: +308203664
giaglis@aueb.gr

Abstract

Digital Television presents a new business environment with great potential for marketers. The ability of
delivering personalized messages is an essential driver for the evolution of the medium, at least during the first
stages. Customisation and personalisation are extremely powerful magnets for the organization of advertisement
campaigns, and differentiate interactive personalized advertisement from traditional advertisement methods,
where such customisation is much harder to accomplish, or even infeasible. The purpose of personalisation and
customisation is to tailor the interactive advertisement to match each viewers interests and individual needs. In
this paper we are investigating Digital Television concept and provide four observations with respect to the
delivering of personalized messages. Furthermore, we suggest a method for defining the interactive and
personalized advertisement price level through the collaboration of several business entities. This method meets
the requirements of all the involved players and establishes win-win relationships.

1 Introduction
Digital Television is the new entrant to the general umbrella of the Digital Economy promising to deliver a wide
spectrum of value adding services to the viewer. One great attraction is the prospect of providing viewers with
interactive services [9]. Consumers could order goods through the television, download games, check their bank
statements, even draw up a schedule of programs they would like to watch one evening according to their own
preferences, receive personalized advertisements and have the opportunity to interact with the medium. All of this
would be available through a keypad or remote control.

Unlike traditional broadcast mechanisms where the entire audience receives the same content, Interactive (or
Digital) Television enables an individual connection between a viewer and the online presence of a business
entity. To fully realize the advantages of personalization, a business entity must aggregate the data collected from
individual viewers to deliver personalized content to a targeted audience, through the close cooperation between
advertising companies and broadcasters [16]. The digital television concept applies to the long promised
convergence of computing, telecommunications, and entertainment into a single device [4], providing interaction
capabilities.

A great deal of TV time is devoted to passive video commercials while only a small percentage of this content
refers to actual needs of each consumer (including impulsive purchases). It is generally agreed that the potential
benefits of converging technologies would not be realised without the supply of interactive and personalised
content and information [7]. Interactive television as a virtual hypermedia environment incorporating interactivity
with people and Set Top Boxes represents a revolution in marketing [4] [29]. Evidence [6][9] shows that digital
television and Electronic Commerce with all their new developments will redefine the meaning of the 4 P’s of
Marketing [12][28].

Within this digital transformation, the Advertising Companies wish to deliver targeted interactive personalized
commercials to the viewers, with the expectation of having more detailed data regarding consumer behavior and
attitude. Obviously these data collections will clarify the viewer’s profile, thus a direct affect on the industry of
advertisement through television is expected.

In this paper we address the problem of pricing policy for interactive personalized advertisement through digital
television. Many researchers argues that the creation of a new electronic marketplace affecting in a direct way the
price of products and services within the new form of doing business [2][5][6][11][14]. Our perspective in most
of the cases approximates the Internet paradigm. The paper has been divided into two parts. In the first part we
make some basic observation about how the personalized advertisements could be delivered to the viewers. In the
second part we propose a formulation for the defining the exact level of priced, with respect to maximizing
revenue streams. Through the constructive we will follow, the establishment of win-win relationships is ensured.

2 The context Interactive Advertisement over Digital

Television Broadcasting
2.1 Structure of the Industry
Interactive Advertisement is rather like an amalgamation of an electronic trade show and a community flea
market. As an electronic trade show, it can be thought of as a giant international exhibition hall where the viewers
can ask for further information at will and visit prospective sellers. As a flea market, it possesses the fundamental
characteristics of openness, informality, and interactivity, a combination of community and a marketplace [5].
Moreover, in this online market, information technologies enable companies to capture and manage information
that can add value to their businesses by streamlining operations and ultimately creating new personalised
customer relationships [5][31]. For study purposes we assume that the delivering infrastructure of personalized
interactive advertisements is broadcast over satellite with an on line return channel [23].

The current structure of the industry of advertisement through television includes three major players, namely the
Advertising Companies, the Broadcasters and the Viewers [16]. The advertising companies are booking airtime
within the regular program flow of a broadcaster, in order to pass a communication message to consumers. Thus
the broadcasters are acting like information carries between the advertising companies and the consumers /
viewers.

Lots of the advertisement activities require the involvement of both

the advertisers and the Broadcasters (Interorganizational Business A C
process), thus creating high operational costs due the use of assets B C
from both sides, without any guarantee that this cooperation will A C
conclude to an agreement [3]. The benefits stemming from the new
methods of conducting business, collaboration and the ICT’s B C
capabilities could create economies of scale and scope (or economies A C
of aggregation [5]) by establishing different and more flexible A: Advertising Companies
structures to organize business Apart from the economic perspective, B: Broadcasters
new innovative services and opportunities could be supported through V: Viewers
flexible organization structures and create new sources of revenue
[13][1].
Figure 1Current Industry structure
Up until now Advertising Companies and Broadcasters are two distinct industry segments due to the different
scope, mission and product they provide. However according to Banes et al convergence implies the creation of a
common distribution network incorporating multiuse attributes [4], which will enable the delivery of interactive
advertisement. This will dramatically affect the industry structure and create the necessity for new activities that
correspond to the new industry segments (e.g. Content, Packager, Transmission network, Manipulation
Infrastructure and Terminals). Thus a redefinition of the scope of business for the traditional players and the
entrance of new players is expected [13].
 Content A A A
C
C
C
Manipulation SP
Infrastructure Packager C
C
Transmission Net

Content B B Terminals

Figure 2 Proposed industry structure for delivering personalized advertisements

Following the case of the Internet, new communication and information technologies will sustain the
intermediation scheme, due to the fact that the activities related to the Transmission network role require high
investment and special core competence. Sarkar et al [32] argues that the intermediation scheme will continue to
exist, since the intermediate players are able to reconfigure their asset and expand the service provision to both
sellers and buyers. In addition there are physical limitations for each advertiser or broadcaster to build its own
distribution network [12][14].

Intermediaries are also instrumental in shortening the length of the time necessary for a transaction to complete,
therefore decreasing the “search” efforts in a market [5]. Bhattacharya and Hagerty [2] see the role of
intermediaries as “price setters,” serving as regulators between buyers and sellers. This new collaboration scheme
requires the creation of some revenue streams to the Service Provider.

(Observation 1): Interactive and personalized advertisement requires a cybermediation scheme.

2.2 Transforming Media activities

Traditional advertisement through television is considered as a video stream broadcasted to the viewers that are
watching the specific program[15]. The digital television will provide apart from the stream, extra features like
Bookmark of the specific advertisement, Contact with the supplier of the product, find details for the product or
services[16]. This interaction style resembles the Internet, but it is yet quite premature to predict how the form
and scope of advertisements will evolve, due to the fact that the Internet experience could not be transferred as is.
The viewing habits of television are very strong: lean back attitude, multiple viewers at the same time, viewing
distance smaller than five meters and TV is switched on all the time. In addition TV has specific technical
characteristics : display, size of monitor, bandwidth available etc[30]. All these build a rather complex
environment for predicting the evolution of the advertisement.

In addition the ability to collect viewers’ responses – aggregating them into large databases, will affect the way
that advertising companies are executing media planning activities, due to the fact that more accurate targeting
could be performed based on statistical analysis and data mining techniques[21][26][28]. The construction of
consumer behavior tracking and analysis models is an open issue with particular limitations when applied to
automated computer systems [17][26][28].

The environment of digital television could facilitate the overall advertisement campaign of a specific supplier.
The supplier does not need anything more to promote the discounts for its products or services as a special leaflet
within a newspaper. It could come close to the customer through the interactive television and provide the above-
mentioned leaflet in a digital format, as the interactive part of the commercial.

This fact could redefine the effectiveness of each some marketing actions (like in store promotions, outdoor
advertisements)[17] because the targeting tool of digital mediums are more accurate [7]. Possible the effective
targeting capability and the paradigm of Internet advertising, will increase the demand for advertisements through
digital television, and consequently affect the price of advertising over the DTV [11].

(Observation 2) Advertisement campaigns will have a different format

2.3 Market Segmentation

Currently the marketers segments the market based on demographics and psychographics data. VALS Lifestyle
Segmentation and the Nine American Lifestyles is the dominate model for segmenting the market and provides
nine clusters with specific attributes each (Domestic, Withdrawn, Comme Il Faut, Unsatisfied, Conventional,
Socially Aware, Carefree, Upcoming, Critical)[25]. We consider that these classes will evolve in the new digital
broadcasting environment.

Targeted advertising will enable the delivery of personalized messages to each member of the household.
Personalization involves tailoring the presentation of an advertisement to individuals or classes of viewers based
on profile information, demographics or prior interactions [17] [21]. These data elements are the targeting
variables by which the advertisement companies should choose the characteristics of the viewers to whom they
would like to show the commercial.

We consider that it is very difficult to deliver a personalized message directly to a household because this
requires having detailed information about the consumer.. In addition the interactive medium should recognize
which member of the family is sitting in front of the television and the advertising companies should be able to
control all the targeting variables (assume that the targeting variables are n (n>20) the number of classes are n!)

These problems could be partially resolved under a set of assumptions1, but at the same time a set of obstacles
arise. For example the use of a questionnaire as a collection instrument could provide some extra information
about the psychographic profile of a family member but it is very difficult for an individual to answer the
numerous questions using the remote control as an input device.

The complexity could be limited through the automatic manipulation of these variables. The use of statistical
methods (Regression Analysis, Multivariance Analysis) is a first choice, but limited by the fact that the data
comes from the whole population [18]. Instead of using statistical analysis it is more preferable to use data
mining techniques in order to classify consumer data sets and create representative clusters [8]. The existence of
several classes allows the advertising companies to accomplish their mission more effectively.

Cluster creation could be achieved using Data Mining techniques. Data Mining is the automated process of the
non-trivial extraction of implicit, valid, previously unknown and potentially useful information from data
collections [22] [8]. Clustering methods are the basic algorithms for the manipulation of profiles. Data mining
has been used in the context of digital television in the production and provision Personal Electronic Program
Guides [27]. This effort includes the use of Collaborative Filtering technique. The Personal EPG, application-
clustering methods are used to interpret the feedback given by users when watching TV programs. Similar
profiles have to be clustered, new interests have to be detected, new sub-profiles have to be merged with existing
profiles, existing profiles must be updated and old interests are to be removed [27].

In general the use of data mining for delivering personalized services could be based upon the followings [22]

User profiles. In its simplest form, personalization is achieved through user registration. When users
initially visit a site, they are asked to provide demographic information and indicate preferences or
categories of interest.

Collaborative filtering. Collaborative filtering takes advantage of previous decisions made by other
people with whom a given individual shares common characteristics. Collaborative filtering applications
collect observations of user preferences and then make recommendations based on correlation matrices
of users' tastes and preferences.

(Observation 3): The personalization procedure will be accomplished in a cluster level

2.4 Personalization level

The electronic marketplace that will facilitate the advertisement through digital television could extend the
paradigm of the Internet personalization [5] and uses viewer tracking technologies for the identification of the
viewer expanded by demographics, navigational and psychographic data. Demographic data includes the
information about the gender, the age, martial status of a viewer of the household and could be collected during
the registration to the digital platform. Navigational data is the collection of all the interactions that the viewer
has done to previous periods (e.g. zap to another channel). Psychographic data includes all the information that
the advertising companies would like have, in order to understand consumer lifestyles in order to communicate
more effectively with people in that segment. At the moment the ms

1
For example in the problem of which member of the household is watching television , the service provider
could offer a log in mechanism for the consumers or provide a button to the infrared control to indicate each
individual his her presence [16]
Although the capabilities of Information and Communication Technologies allow the storage and manipulation of
such data collections, we should investigate the feasibility of gathering these data from the viewers in the digital
televisions environment. As Table 1depict we could have very good accuracy on the data that coming from the
users. But it is still open “How” you could get these data. An obvious answer is that the Advertising Companies
in collaboration with Service Provider should give intensives to the viewers (e.g. discount in special products,
lotteries etc) so that the viewers would like to answer to a Questionnaire, but we consider it as not a functioning
assumption for our problem. Main limitation factors for the collection of data are the input devices (Remote
Control or Remote Keyboard), lack of trust between the service provider and the viewer etc.

Data Category Collection method Accuracy Issues

Collection Use
Demographic Questionnaire Medium – How you get demographic data for all How you will identify
during registration High the members of the household? which member(s) of the
household are sitting in
front of the television?
Navigational Software High How you can manipulate effective
Components navigation history? Which is the “viewer
profile” when two or
Psychographic Possibly on-line Low- How you get phsycographic data for more members of the
questionnaire to Medium all the members of the household? household are watching
representative television?
individuals of each How you track changes in the
cluster phsycographic profile?
Table 1Data categories and problems in the context of digital television
For each data category we highlight a question(s). Issues related to the collection, refers to special problems of
getting details about the household and track consumer / household behavior[29][26]. Additionally to the
collection, there are some problems with the delivery of the personalized message to the household. By applying
a set of predefined rules for each member of the household (assuming that belong to a different cluster), rises the
need to build intelligence within the terminal devices, that will decide which advertisement will finally play to the
viewers of the household.[24] [21]

The level automated decision-making process, affects the price of personalized advertisements [26]. On one hand,
if the service provider will not be able to guarantee to the advertising company that it could deliver the message
to the desired targeted viewer / household, the advertising company will not cooperate under these circumstances.
On the other hand if Service provider operates within a control - classified environment, promising reliable
delivery of commercials, the price of the advertisement message will be lower than the broadcast environment,
but the simultaneous multicasting of more advertisements will create higher revenue than the broadcast case.

(Observation 4) Clusters will be in a household basis

All these observations will pave the ground in the creation of a model that will define the price of the interactive
personalized advertisement.

3 Advertisement Life Cycle over DTV

There is a straight correlation between (see equation 1) the price of the advertisement through television and the
viewers preferences (see equation 1).

Advertisement Price = Adjustment Factor * Audience Presence (1)

The new digital environment could facilitate the process of pricing the personalized advertisement due to the
plethora of information sources it could manage. Thus it could straight affect the price level due to the fact that it
could easily make statistical predictions about the audience presence (Pre Evaluation models), or calculate the
exact presence of viewers for a previous period (Post Evaluation models)[9]. In the next table we summarize the
advertisement evaluation techniques in the broadcast and the new personalized television environment. For the
new advertisement context we indicatively present some techniques because there are not any specific cases.

Pre Evaluation Post Evaluation

Broadcast Statistical Analysis – Historical Data Statistical Analysis – Evaluation of
media metrics (e.g GRP, CPR)
 Personalized Statistical Analysis - Historical Data Statistical Analysis - Historical Data
Data Mining - Cluster Behavior Data Mining - Cluster Behavior

Table 2 Techniques for predicting audience presence

In order to develop a model for investigating the behavior of price, in the next section we will present the
relationship between the

3.1 Price in a broadcast

As mentioned before the price of advertisements over digital television will be initially lower than the regular
broadcasting due to the fact that the audience presence is smaller. Based on this observation we can find the
minimum number of clusters that the digital environment should support in order to be viable within the
competition arena.

Let
R B : The revenue stream from the Broadcast Environment
R DP : The revenue stream from the Digital Personalized Environment
C B : The cost per second for broadcasting one advertisement
C DP : The cost per second for delivering a personalized advertisement
D : The duration of the advertisement break
K: The number of clusters in the personalized environment.

The created revenue for the broadcast environment is given by

D
R B = ∑ C B * t , (2)
t =1
The created revenue for the broadcast environment is given by
D
R DP = ∑ ∑C DP
* t , (3)
K t =1
The equilibrium point between the revenues is
D D
R B = R DP ⇒ ∑ C B * t = ∑ ∑C DP
*t ⇒
t =1 K t =1

CB
= K , (4)
C DP
The underlying assumption is that both broadcast and personalized digital environments should refer to the same
audience of viewers. Equation (4) shows that the number of clusters determines the price of the personalized
advertisement. Obviously if the new environment has only one cluster (K=1) then the price should be the same
regardless of the environment The number of clusters (thus an information rich environment) could create bigger
sources of revenue than the broadcast environment.
C B ≤ K * C DP , (5)
In addition the viability of the service provider (who is the owner of the clusters) should determine the price of
personalized advertisement using as baseline criteria the cost of the advertisement in the broadcast environment.
In general the existence of well-defined clusters is a critical success factor in the delivery of personalized
advertisements from a financial perspective.

3.2 States of Viewer

A second issue that we need to clarify is the potential states of the user. A viewer could enter (Incoming state) the
specific the advertisement break at any point. This state changes to the next quantum time and the viewer is
considered as watching the advertisement from the current point up to the end (Watching State). During the
display of the commercial the viewer has two alternatives. On one hand he/she could zap the to another channel,
thus the viewer will lose the forthcoming sequence of advertisements and on the other hand he/she might interact
with the commercial (Interacting State).. We consider that the last case is different from the zapping although in
both cases the viewer will not see some commercials.
However the viewer found something interesting and decides to get further information about the promoted
product or service.

Incoming Zapping Regular TV Program Zapping

D
1 2 3 4 5 6 7 Incoming Watching

Watching
Interacting
Interacting

Figure 3 States of the viewer during the advertisement break

The distinct states that a viewer could have toward the advertisements stream, depicts in Figure 3. These states
could be automated tracked, but this requires the segmentation of the time space D. Thus we define these events
in a discrete time space.

3.3 General Overview of pricing policy of service provider

As we discussed before, an intermediary entity will enter the industry in order to create the marketplace, thus it
could determine the price level, through the coordination effort that will make. The introduction of delivering
targeted personalized advertisements to the viewers requires a flexible price determination mechanism that will
elaborate in the creation of a win-win relationship for all the entities (Advertising Companies, Broadcaster,
viewers and of course the Service Provider).

As presented from equation (1) the price of an advertisement depends on the expectation for the number of
viewers that will receive the message and the time that will be played. In the new digital environment, we
consider that this paradigm will still exists with some new extensions, coming from the capabilities of the
medium (e.g. the interaction with the medium requires the payment of a transaction fee). We propose that the
price of the advertisement will be based on the

We propose that the exact price determination should be done afterwards the casting of the advertisement to the
desired clusters. This will create some benefits

The audience presence will be known in detail, since the service provider could collect the navigational
data (e.g. the next day or during the night through the telephone line). Thus the level of price will be
more accurate, and the Advertising companies will be charged exactly in what they get.

The interaction state of the viewer affects the total revenue stream.

The broadcasters will be able to negotiate the price for special positions within the advertisement break
(e.g. first and last position within the advertisement break will charge in a different way the interaction).

The viewer receives interesting advertisement messages and has the ability to interact and get more
detailed information without paying anything.

In general we propose that the price should be organized into two phases: The first order where the advertising
companies targeting and booking the desired clusters, and the second order where the service provider announces
the exact price of each advertisement based on the viewership.

During the first order Advertising companies could negotiate

First Order Second Order
the upper bound of the advertisement price and make Evaluating
Targeting and
bookings that meet their requirements. These prices could be Booking
defined based on statistical analysis. These step will try to
uniform distribute the demand for clusters, thus we will Best Price Level
ensure that all the clusters (viewers) we get advertisement
messages.

The second order will evaluate the exact price for each advertisement, based on the audience presence and the
interactions that occurred. In the next section we provide the formulation of this problem.
4 Model Construction
At this section we will provide a modeling perspective for the pricing policy definition that the service provider
could implement in order to establish win-win relationships with the advertising companies and the Broadcasters.

Problem Definition: For a given set of Clusters, maximize the revenue stream coming from interactive
advertisement

Let :
Ci : The cluster i with i ∈ [1.. N ]
N (Ci ) : The set of clusters that are neighbors to the cluster I (founded by the k-nearest neighbors technique)
A j (t ) : The duration of the commercial j with j ∈ [1..D ]
K i ,t : The cost per second for the I-cluster
UKi,t,: The upper cost per second for the cluster i
T: Upper bound of a specific time zone.
zi (T − 1 < t < T ) : A weighting factor for the time zone that the cluster will be played
D : Duration of the advertisement break

First Order Formulation

This part cover the major problems related to the targeting and booking issues.

The cost for playing an advertisement to a specific target group is

(z (T − 1 < t < T ) ∗ A (t )) ∗ K
i j i ,t

and depends only on the duration and the selected zone of the commercial since the price per cluster is fixed.
Thus the total revenue from a specific cluster for the broadcast of a commercial is

Ri ,t = ∑ (z i (T − 1 ≤ D ≤ T ) * A j (t ))* K i ,t (6)
D

t =0

Rit is the price that the Advertising companies should pay in order to book a specific advertisement for a cluster
and refers to the first order pricing of the advertisement. In addition we can expand (6) due to the fact that the
demand for the clusters is variable. This fact could cause two problems

However there is the possibility that demand for a specific cluster is highly time dependent. In order to manage
more effectively the clusters and the services both to Advertisers and viewers, the need arises to build a
mechanism in order to balance the supply-demand forces. This could be achieved for instance by giving specific
discounts to the advertisers in order to move from one cluster to a “near” cluster.

Assume that the cluster Ci has not time space for more advertisement. N (Ci ) could include clusters that might
interest the advertisers to target, instead of booking the Ci , because the elements of N (Ci ) have been
constructed through the k-nearest neighbors algorithm[22]. Using the Pearson coefficients we can arrange a
special discount dynamically for all those advertisers that would like to move from a high demand cluster to one
with lower demand but with slightly different characteristics. We assume that through this mechanism all the
clusters will be filled with advertisement messages. The revenue created from recommendations/discounts is
derived from the following formula

Discounts = d i ,k * Ri ,t (7)
where d i ,k is the discount for moving from cluster i to k.
Up to this point the total revenue would be the sum of revenue from booking to a desired cluster and the revenue
of moving to other clusters. From (1) and (2)
  D 
Ri ,t = d i ,k  ∑ (zi (T − 1 < D < T ) ∗ A j (t )) ∗ K i ,t  ⇒
 ∀j , t = 0 
* (zi (T − 1 < D < T ) ∗ A j (t )) ∗ K i ,t , where d i ,k = 1, if
D
Ri ,t = ∑d
∀j ,t =0
i ,k i = k (8)

However some viewers will not see one or more advertisements, during the broadcast because they might choose
to interact with one advertisement or they zapped to another channel. These two events should be considered in
the second order step of the pricing scheme.

Second Order Formulation

After the broadcasting of the commercials, we should investigate the states of the viewers.

Watching: Viewer watches the commercials passively.

Incoming: The viewer joins the specific broadcasting.

Zapping: The viewer zaps to another channel.

Interacting: The viewer interacts with one advertisement.

These events will eventually set the final price of each advertisement, because they could provide the audience
presence. With respect to each distinct event for each viewer that belongs to a specific cluster, we define the
number of viewers.

Let :

V (Ci ) : The number of individuals of the cluster I

Watt (V (Ci ) ) : The number of people that watched the commercial at time t, with t ∈ [0.. D ]
Inct (V (Ci ) ) : The number of peoples that started watching the advertisement sequence at time t, t ∈ [1.. D ]
Zapt (V (Ci ) ) : The number of viewers that changed channel during the commercials t ∈ [0.. D ]
Int t (V (Ci ) ) : The number of viewers that interacted with the medium at time t. t ∈ [0.. D ]

For a given time t = t v the exact number of people coming from the cluster Ci , that are watching the specific
commercial could be calculated based on the next formula:

Qtν (V (Ci ) ) = 
[
 Wattν (V (Ci ) ) + Inctν −1 (V (Ci ) ) − Zaptν (V (Ci )) − Int tν (V (Ci )) 
 (9)
]
 V ( C )
i 

Thus the behavior of the cluster Ci could be monitored for the whole duration of the advertisement break with
the next formula.
D
Q * (V (Ci ) ) = ∑ Qt (V (Ci ) ) (10)
t =1
Equation (5) depicts the distribution of viewership for a specific cluster during the advertisement break and could
be used in order to define the exact price of the each advertisement, after it was played. It is obvious that
Q * (V (Ci ) )
∈ [0..1] and can be employed as a weighting factor for determining the total cost of a specific
D
advertisement.
Q * (V (Ci ) )
W (V (Ci ) ) = ∈ [0..1] (11)
D
In addition interactions could be charged on a fixed price per interaction basis, since they could be seen as a
competition hurdle for the forthcoming advertisements. Consequently we should take into account the total
duration of the interaction. We assume that every interaction starts at t = t v time period and ends at t = t v + ε ..
During interaction state, viewer will not have the ability to see the in-between ads. Thus an advertiser should no
be charged for the interaction if he had booked the last ad slot, because there is no other advertisement. On
contrast an advertiser should be charged if he hides from the viewer a set of advertisements during interaction
state. Thus it will be cheaper to book a slot close to the end of the advertisement break, if the advertising
company expects that the number of interactions would be high. For simplicity reason, we assume that
interactions occur some time in the middle of each advertisement. Let:

IntFee: The fixed price for an interaction event.

tn : The end of the advertisement slot
t i : The time the interaction occurred.
ε : The duration of the interaction.

The next formula calculates the extra money that the advertising company should pay.

 A (t ) 
 ε − j  * IntFee , when t n − t i ≤ ε
 2 

I (V (Ci ) ) = (12)

0 , when t n − ti > ε ,

Optimization Model
Using (8), (11) and (12) we have the function which describes the several perspectives of the revenue stream as
described above.
N  D  
max ∑  ∑ Ri ,t * W (V (C i ) ) + I (V (Ci )) , subject to
 i =1  t =1  

C i ∩ C z = ∅, ∀ i, z ∈ [1..N ]
K i ,t ≤ UK i ,t
1
∑ A (t ) ≤ D
j
j , where t =
D
d i ,k = 1, if i=k
C ≤ K * C DP
B

The constraints are the basic assumption that we had done during the formulation procedures (First and Second
order) and extended by the propositions we have done about the relationship between the broadcast and the
personalized environment. For example the last constraint dictates the existence of the capability to broadcast an
advertisement message. The solution of the problem could stabilize the level price in a range that both advertising
companies and broadcasters would accept.

5 Conclusions
We have shown that the number of clusters fragments the price level for interactive personalized advertisement.
In addition we provide a modeling perspective for the definition of a ‘fair’ price level both to broadcasters and
advertising companies. The use of data mining for the discovery of market segments could be the vehicle for
providing efficient and effective targeting. Further research within the domain of interactive personalized
advertisements includes the identification of special pricing schemes for within the advertisement break,
modeling of the clustering procedure and the price determination based on software agents and the organization
of advertisement campaigns over emergent interactive mediums.

Unlike to a single PC within the context of the WEB, special attributes of the television set increases the
complexity of delivering personalization messages problem. The crucial points are the limited air time and the
behavior of the viewers. The expecting growth of interactive advertisement though broadcast environment will
create new research challenges and business opportunities.
6 References
1. Bose, G. and Pingle, M. Stores. (1995) “Economic Theory”, vol 6, p. 251-262.
2. Bhattacharya, S. & Hagerty, K. Dealerships, training externalities, and general equilibrium. In Prescott,
E.C. and Wallace, N. (eds.). “Contractual Arrangements for Intertemporal Trade”. Minnesota Series in
Macroeconomics, Minneapolis: University of Minnesota Press, 1989.
3. Williamson, S. D. “Recent developments in modeling financial intermediation”. Federal Reserve bank
of Minneapolis, Quarterly Review, 11, Summer (1987), 19-29.
4. Bane P, Bradley S, Collis D (1996) “Winners and losers: industry structure In the converging world of
Telecommunication, Computing and Industry”, Harvard Business Review
5. Bakos Y (1998) “ The emerging role of electronic marketplaces on the internet”, Communications of the
ACM,
6. Forrester Research (1999), http://www.forrester.com
7. Tomlin J (2000) “An entropy approach to unintrusive targeted advertising on the Web”, Computer
Networks, p776-774
8. Brachman R, Khabaza T, Kloesgen W, Shapiro G, Simoudis E (1996) “Mining Business Databased”
Communications of the ACM, November 1996, vol 39, no 11
9. Direct Marketing Association (2000), http://www.the-dma.com
10. Venkatesh A,(1996) “Computers and other interactive technologies for home”, Communications of the
ACM vol 39,No 12, 47-54
11. Hoffman D, Novak T, (2000) “Advertising Pricing Models for the World Wide Web”, in Internet
Publishing and Beyond : The Economics of Digital Information and Intellectual Property, Deborah
Hurley, Brian Kahin and Hal Varianm eds. Cambridge: MIT Press
12. Competitive Media Reporting (1999). http://www.usdata.com
13. Kaplan S, Sawhney M, (1999) “B2B E-commerce hubs: Towardsa taxonomy of business models ”,
Mohanbir Sawhney and Steve Kaplan
14. Bakos Y, Brynjolfsson E, (1999) “Bundling and Competition on the Internet”,
15. McAdams M, (1995) “Information Design and the NewMedia”, Interactions, p36-46
16. Pramataris K, Papakyriakopoulos D, Lekakos G, Mylonopoulos N (2001) “Personalized Interactive TV
Advertising: The IMEDIA Business Model”, Journal of Electronic Markets, vol 11
17. IAB On Line Advertising Effectiveness Study, (1997), Internet Advertising Bureau
18. Robert Groth, “Data Mining: Building Competitive Advantage”, Prentice Hall 2000.
19. Fu X, Budzik J, Hammond K, (2000) “Mining Navigation history for recommendation”, IUI 2000 New
Orleans LA USA, Copyright ACM 2000, p106-112
20. Aggarwal C, Sun Z, Yu P.(1998) “Online generation of profile association rules”.. In Proc. of the
Fourth International Conference on Knowledge Discovery and Data Mining,
21. Adomavicius G, Tuzhilin A “User Profiling in Personalization Applications Through Rule Discovery
and Validation” , In Proc, of the KKD Conference, San Diego
22. Jain A, Murty M, Flynn P (1999) “Data Clustering: a review”, ACM Computing Surveys, vol 31, p264-
323
23. Milenkovic M (1998) “Delivering Interactive Servicesvia Digital TV Infrastructure”, IEEE, p34-43
24. Smyth B, Cotter P, (2000) “A personalised TV listings service for the digital TV age”, Knowledge-Based
Systems 13, p53–59
25. Values and Lifestyles Psychographic Segmentation – VALS, available at
http://future.sri.com/VALS/VALSindex.shtml
26. Leeflang, P, Wittink, D, (2000). “Building models for marketing decisions: Past, present and future”.
International Journal of Research in Marketing 17, 105–126
27. Ehrmantraut M, Härder T, Wittig H and Steinmetz R, (1996) “The personal electronic program guide--
towards the pre-selection of individual TV programs”, Proceedings of the fifth international conference
on Information and knowledge management, Pages 243 - 250
28. Mahajan V, Venkatesh R,(2000) “Marketing modeling for e-business”. Intern. Journal of Research in
Marketing, vol 17, p215–225
29. O’Brien J, Rodden T, Rouncefield M, Hughes J, (1999) “At home with the technology: An ethnographic
study of a Set-Top-Box trial”, ACM Transactions on Computer-Human Interaction, vol. 6, no. 3, p282-
308
30. Assayag C, (2000) “Walled Garden sites or total world wide web access?: Evaluating the role of the
internet in interactive television service offerings”, Presentation on the Interactive Television & Internet
TV,
31. J.F. Rayport and J.J. Sviokla, (1995) “Exploiting the Virtual Value Chain”. Harvard Business Review,
p75-85.
32. Sarkar, M, Butler, B. and Steinfield, C. “Intermediaries and Cybermediaries: A Continuing role for
Mediating Players in the Electronic Marketplace”.. JCMC l(3), 1996.