Super Bowl Ads: Incredibly Cheap or an Incredible Waste of Money?

Both, actually. Let me explain.
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For the second straight year, advertisers are willing to pay about $4 million for a 30-second Super Bowl spot, and for the umpteenth straight year, there are questions about whether Sunday represents a sensational steal or an insane rip-off. Compared to another primetime TV commercial, there's no question: Super Bowl ads are cheap. But compared to, say, any other sensible way of spending money, many Super Bowl ads are something like a ritual financial sacrifice, a pyre of money set on fire to please the Buzz Gods for no particular reason.

But to understand why most Super Bowl ads are flops, you have to understand why companies buy them in the first place. It's because, in a way, they're no more expensive than any other primetime advertisement.

Super Bowl Ads: The Best Deal on Earth

The Super Bowl's audience exists on a different planet from the rest of everything we call "pop culture."

A blockbuster that grosses $400 million domestically has a paying audience of about 45 million. NCIS, the most watched show on television, has a weekly audience of 21 million. The most popular album of 2013, Justin Timberlake's "The 20/20 Experience," sold 2.4 million copies last year. So if you add the year's biggest movie and the year's biggest TV show and the year's biggest album (while pretending that there is no overlap), you sum to an audience of 69 million, total. This year's Super Bowl is projected to have 120 million viewers watching—all at once. There is pop culture, and then there is the Super Bowl.

It's no surprise, then, that as attention has fragmented, the price of a Super Bowl ad has grown even faster than viewership, as this great chart from Bloomberg shows (audience numbers to the left; ad prices to the right, in green).

To understand why the Super Bowl is such a good deal by TV advertising standards, you have to understand the first thing about TV advertising. It's not about the price you pay for the advertisement. It's about the price you pay for the eyeballs.

The argument "$4 million for 30 seconds is absurd" is sort of like saying "$1,000 for dinner is absurd." Yes, $1,000 is an expensive dinner-for-one. But what about a fancy dinner for 10 friends? Or 20 friends? Or 100? The more people at the table, the more that $1,000 starts to look like a bargain.

At least 115 million people will watch the game this year. When you divide a $4 million commercial by an audience of 115 million, you get a "rate" called CPM—cost-per-mille (thousand viewers). The Super Bowl's rate this year is about $35 to reach 1,000 people. Is that expensive? Not at all. Last year, the average CPM for primetime TV was also $35. On a per-person basis, the Super Bowl is the same price as buying a typical 30-second primetime spot any weekday of the year.

But Super Bowl ads aren't like any other ad. They're special. They're celebrated. You actually watch them. People in living rooms across the country say, in unison, "Everybody shut up, I want to experience this corporate messaging so that I can engage with the brand." Okay, so maybe that's not verbatim, but it's the gist. For four hours a year, a Super Bowl viewer transforms from an ordinary human, constantly rejecting the bombardment of advertising, into a marketing professor's platonic ideal of consumer, diligently seeking out great brand messaging. Surely, that remarkable metamorphosis is worth something.

What is it worth, exactly? This is where determining the true value of a Super Bowl ad suggests that the problem isn't the message—it's the medium.

Super Bowl Ads: An Incredible Rip-Off

The question "do Super Bowl ads work?" is a somewhat useless question because it's such a broad category. If somebody asked you, "are movies any good?" or "are TV shows watched?" you would regard this person like an alien, and then, after realizing the question was serious, respond with some variation of "uh, sometimes?" And "sometimes" is the answer to the Super Bowl question, too.

Super Bowl ads work, sometimesBrain scans of 2006 Super Bowl viewers watching different commercials revealed dramatically different fMRI results for different ads, confirming what you already knew. Some Super Bowl ads are brain-tickling pieces of art. Some Super Bowl ads are toe-curlingly awful.

Even if many of the ads fail, there does appear to be something like a "Super Bowl bump" in the market. The stock prices of Super Bowl advertisers between 1996-2010 increased by $10-20 billion annually for the two weeks around the big game, according to research from the University of Wisconsin, Eau Claire. Another study found "significant abnormal net buying activity," particularly among retail investors, up to 20 days after Super Bowl ads. This brief post-game spike didn't necessarily last longer than a fortnight. But it suggests that, even if viewers don't love all Super Bowl advertisements, investors do.

What about consumers? After all, Super Bowl ads aren't art installations. For them to "work," they must convert viewers into paying customers. The evidence here is mixed. In a new research paper, "Do Superbowl Ads Affect Brand Share?", Wesley R. Hartmann of Stanford Business School and Daniel Klapper of Humboldt University Berlin studied Budweiser, Coca-Cola, and Pepsi commercials to determine if beer and soda companies have used the game to add market share.  In both cases, the researchers were "unable to find an economically significant relationship between advertising and sales." In fact, the rate of return was so negative, it called into question the entire premise that TV advertising works for well-known commodities.

If Super Bowl commercials ever work, perhaps they're considerably better at introducing products rather than moving the needle on brands everybody already knows. One study from Google found that Super Bowl ads for lesser-known products or companies create "large spikes in search behavior" minutes after airing. Another paper found that movies promoted during the Super Bowl could expect a 40 percent bump at the box office. Movies offer a good moment to remind ourselves we don't know which way causation runs. Does the Super Bowl create a box office bump? Or do blockbusters with big marketing budgets buy the Super Bowl because they can afford it? Probably: both.

Super Bowl advertisements can be both a steal for companies introducing a new product and, just as often, a phenomenal waste of money for established brads trying to eke out another percentile of market share. But once an audience knows what you're about, even the funniest 30-second commercial is just a feather on the scale.

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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