Super Bowl Advertising
Article Link: https://www.nytimes.com/2017/01/29/business/5-million-for-a-super-bowl-ad-another-million-or-more-to-market-the-ad.html
In recent years, the advertisements running during breaks in the Super Bowl game have almost become more popular than the game itself. As a result, as this article explores, advertising prices have climbed drastically. While companies have always been eager to advertise on television during the Super Bowl, these slots have become more and more coveted as the age of the smartphone continues to grow. With so many consumers on their phones nowadays, it is difficult to gauge as much attention for TV ads as in past years. Therefore, in a time of year where millions of individuals are guaranteed to be staring at their TV, it is more important than ever for companies to not only secure an advertising slot during the Super Bowl, but also air a compelling commercial.
It is interesting to see how companies have begun to value these commercial slots more and more. So much so, in fact, that some companies are starting to advertise their advertisements! At this point, companies are trying to gain more viewership and interest in their commercials, with many releasing teasers in the weeks leading up to the Super Bowl. As a result, there seems to be more interest in not only advertising on TV during the Super Bowl, but also on social media platforms such as Twitter, Facebook, and YouTube. These platforms have caught on and generated their own advertising modules themselves, further increasing advertising prices for other companies.
As we can see, this has caused a shift in the advertising market. Let’s focus on the companies’ valuations for advertising slots first. Companies tend to value Super Bowl commercial slots extremely highly, with some paying as much as $5 million to air a thirty second commercial. Because of their high value for this commercial, companies are then willing to spend more money promoting this commercial prior to its release. We can then sum up a company’s valuation for an ad by adding how much they are willing to pay total in both airing the commercial and promoting it. In a common advertising market then, it would be against the companies’ best interests to submit a bid for an advertising slot that is equal to their valuation of that time slot. For example, if company A were to value slot X at a total of $5 million, and they bid $5 million and win the auction, in a typical market, they will need to pay the next highest bid for that time slot. But what if the next highest bid is $4.9 million? Then, this company will only have $100,000 to spend on promoting the advertisement; this is a very small amount to use in promoting when their advertisement itself cost nearly $5 million to air. However, they can’t spend more than $100,000 on a marketing campaign; doing so would cause them to spend more than their total valuation of the advertisement. Thus, in bidding for a Super Bowl commercial slot, it would be in companies’ best interests to bid a bit lower than their true value.