The entertainment of Super Bowl night does not end on the field; plenty of people remain focused on the action between the action: advertisements. It is no secret that advertisers go all out for the Super Bowl. They sink some of their greatest ideas into a 30 second clip which costs $4.5 million (that's $150,000 per second plus the costs of actually producing the ad), all to reach what is the largest audience in the United States. With costs so great, it makes you wonder if the value is actually worth it.
An article by Matthew Yglesias on Vox entitled The unsustainable economics of Super Bowl ads attempts to answer to that question, and his answer is a resounding "no". The article begins with a discussion of a common measure of value in the advertising industry:
The easiest way to look at this question is to start with industry-wide CPM statistics. That stands for cost per mille, the price an advertiser pays to reach a thousand viewers (advertisers love Latin, apparently). The average CPM for 2015 so far is $37.35 which makes a $4.5 million Super Bowl ad worth the cost if it gets 120.5 million viewers.Clearly the Super Bowl advertising did not live up to its "value" as described by the author as only 114.5 million people watched the Super Bowl, as was reported by Nielsen. Further building to the authors point in the article, Yglesias explains how advertising cost has outgrown viewership increases, such that now advertisers are "paying a premium in CPM terms."
However, the author fails to realize two key facts about Super Bowl advertising costs. First is just the simple economics of demand for advertising space. The $37.35 average CPM is based on all advertising so far in 2015, including normal shows and shows that are competing for viewership. No one event can compare to the Super Bowl, which dominates ratings and faces almost no competing programs. Simple economics say that advertisers would demand this program in greater proportion to the "average", increasing the amount that they are willing to pay. The second point that the author fails to recognize is the increase engagement that consumers have to these ads. Plenty of consumers remained glued to the television during advertising spots, as opposed to possibly turning away from the TV during normal programming. In addition, millions of Americans take to Twitter, YouTube, and Facebook to continue to view/analyze the ads. This often leads to people voicing their opinions and voting for the ads that "won" and "lost", further driving advertising engagement. Clearly, again, advertisers would be willing to pay a premium for this economic feature.
A recent Forbes article attempts to elicit exactly how much this premium would be for all of these extra economic features related to the Super Bowl. Part of their article directly responds to Yglesias's use of an average CPM figure. The author, Chris Smith, cites a comparable major TV event, the Academy Awards, and its CPM figure of $42 to estimate an effective audience ad cost of $8 million for this year's Super Bowl. However, Smith agrees with my analysis of even higher premiums for Super Bowl ads: "nobody tunes into the Academy Awards to watch the commercials."
The full analysis of the Forbes article details a slightly higher price tag based on the statement by NBC executive Seth Winter, who estimated that a price tag of $10 million would still be worth it for companies to advertise:
"We did an analysis around last year's Super Bowl that Fox ran, and our analysis showed that with all of the video distribution pre- and post-game, the value of the PR, the value of that which advertisers used to activate around their investment that it reached a very solid good foundation number of $10 million."The article then goes on to challenge this $10 million figure based on four main components: basic television viewership, social media, media coverage of the game's commercials, and increased brand awareness. Two of the ideas, TV viewership and social media, were highlighted above and the article further breaks them down quantitatively: 54% higher brand recall for a Super Bowl ad and an average of 19 million additional impressions via social media. The other two components, media coverage and increased brand awareness, are both based on studies performed by market research firm Repucom and researchers at the University of Wisconsin-Eau Claire, respectively. When combined, all of these components of "value creation" add to $10 million.
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