In rare diversion into the world of sports advertising, this week’s post has been prompted by the looming collision between the Patriots and the Eagles in Super Bowl LII.
Last year Kantar Media calculated that the cost of 30 seconds airtime during Gridiron’s showpiece event doubled from $2.4M in 2007 to $4.8M in 2016. In 2017 rates inched up again to pass $5M. Those are big headlines for buyers to accept, even if the increase is spread over a decade or more.
Taking the latest view of ad rates as a starting point, we can dig into the numbers to understand how advertisers are making their calculations and where rates will go over the next few years.
Switching to a CPM view of costs
First up, let’s consider the increase in the cost of a 30 seconds slot against the growth in the size of the television audience. In 2007, the price of advertising to the Super Bowl’s 93 million TV viewers in the US was $2.4M for a 30 seconds slot. By 2016, that cost had increased to $4.8M, but the size of the TV audience had also increased to 112 million (Nielsen).
Using a standard CPM model, the cost per thousand TV viewers rose from $25.6 in 2007 to just shy of $43 in 2016. An increase of 67 per cent. So less than the 100 per cent hike in spot rates. CPM is the number ad execs will have written on the back of their hand as a reference point when negotiating with the broadcasters.
The underlying rate of cost increases
We also need to acknowledge the impact of inflation on the advertising dollar. Between 2007 and 2016, the average annual rate of inflation in the US was 1.8 per cent (US CPI). Compounded over the ten years since 2007, inflation has added 17.5 per cent to the cost of doing business in the US.
When inflation is stripped out, the 67 per cent hike in CPM costs since 2007 becomes a net adjusted increase of 49.5 per cent. The price in the shop window may have doubled, but the real underlying rate of increase has been less than half that amount.
This is why brands are fans of Super Bowl advertising. The game has been good value from a cost perspective and I strongly suspect both airtime buyers and sellers know it.
So advertisers have not been put off by cost, but there is another consideration which could lead to a change in play. This is the depreciation of the value of Super Bowl ads.
Diminishing returns for buyers
Looking at the Nielsen numbers, over the last decade there has been a steady erosion in the number of new viewers available to justify the increase in spot rates. Between 2007 and 2016, the total US TV audience grew by 20 per cent. This is less than half the adjusted rate of increase in CPM paid by advertisers. So the gap between the prices demanded of advertisers and the size of new audiences available to them is narrowing.
In the tables below, we can see how the trends in Super Bowl advertising costs and audiences are converging. We can also track year-on-year changes in spot rates, audiences and CPM values over the past decade:
The point is advertisers are facing diminishing returns. They are being asked to pay more for less gain. This was confirmed in 2017, when advertising costs rose by a further 4.8 per cent to $5M on a 0.6 per cent dip in audience numbers. Super Bowl LI pushed the CPM up to $45. As Forbes’ Chris Smith pointed out last February, “Few shows outpace that sort of cost per viewer”.
Time-Out for rate increases
Running the 2007-2017 trends forward, by 2021 the gap between advertising costs and the available gains in audiences could disappear. In plain terms that means any increase in spot rates would go straight to the CPM, without delivering an additional benefit to the buyer. There is only one possible outcome; the CPM rate would escalate rapidly beyond the $45 benchmark achieved in 2017.
US advertisers like to keep CPM rates as far away from $50 as they can. Fifty bucks is their own line of scrimmage. If we look at changes in Super Bowl CPM rates over time, the overall trajectory is upward. But CPMs have been zig-zagging from year to year as buyers seek to slow the drive towards that all-important $50 mark.
Make existing viewers worth more
Advertisers will still target the Super Bowl. It’s the biggest event in US television. But further increases in spot rates will become harder to push through and by 2021 buyers are likely to say “enough is enough”. No one wants to over-pay.
For advertisers to pay more in the future, there needs to be a good reason for them to do so. As my colleague James Stafford noted last year, if broadcasters cannot grow their audence they will need to boost the quality of audience engagement. Package deals for TV, digital streaming and interactive is one possibility. Fusing TV coverage with social networks is another.
However the NFL and its broadcast partners do it, they need to find more value for advertisers to keep their drive alive.
Due acknowledgement to Kantar Media and Nielsen for making the hard yards with the ad rates and audience research.