DEFINITION of 'Power Ratio'

A measure of a media company's revenue performance (i.e., advertising income) in comparison to the audience share it controls, calculated as follows:

Company Revenue / (Audience Share * Total Market Revenue)

The power ratio shows how much revenue a media company earns compared to how much it would be expected to earn given its market share. Companies want to have a power ratio of at least 1.0, which indicates expected revenue levels, but a higher power ratio is better because it indicates a greater amount of revenue received from the company's audience share. Power ratios show how well a media company converts ratings to revenue.

BREAKING DOWN 'Power Ratio'

Power ratios help media firms evaluate their own performance and, in the case of a possible acquisition, evaluate the performance of a target media company. Power ratios can also be used to compare the revenue performance of one category of media (e.g., the Internet) to another category (e.g., newspapers).

An academic study of power ratios published in the Journal of Media Business Studies in 2005 found that as a radio station's audience share grows, its market revenue share grows disproportionately and as its audience share shrinks, its market revenue share decreases disproportionately.

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RELATED FAQS
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