$8 million.
That was the price to air a 30-second commercial during last Sunday’s Super Bowl, up from $7 million last year. Of course, that doesn’t count agency and production costs, music licensing, celebrity endorsements and other expenses to create these memorable ads. The true “all-in” cost could easily be two to three times higher.
Yet, considering every single slot was filled, it can be worth every penny. In today’s highly fragmented media market, there is simply no other opportunity for making your sales pitch to a global audience of 126 million viewers – many of which are more attuned to the commercials than the game itself.
Humor. Shock value. Gravitas. Advertisers employ everything in the arsenal to generate buzz (and then hope their social media teams can keep the momentum going). It’s a chance for quirky newcomers like Instacart and NerdWallet to upstage seasoned veterans (is it really a Super Bowl without the Budweiser Clydesdales?).
Perhaps the most effective Superbowl commercial came back in 1984, when Apple (NSDQ: AAPL) used some dystopian Orwellian imagery to introduce the new Macintosh line of personal home computers. The powerful ad, created by sci-fi film director Ridley Scott, was wildly successful – generating $150 million in PC sales over the next 100 days.
You can check it out on YouTube.
Superbowl LIX may be over. But the daily grind of building and/or reinforcing brand awareness never ends.
Don’t Change that Channel
From the minute we wake up each morning to the minute we go to bed, Americans are inundated by advertising. Radio jingles. Digital grocery coupons. Facebook feeds. Somebody is always trying to sell us something.
With the aid of powerful data analytics, marketers are now using our own behavior to create targeted ads that are more likely to elicit a response. The solicitations are endless… car insurance, pizza, credit cards, online dating. Some of this omnipresent visual stimulus doesn’t even register and is little more than subliminal.
But it’s highly effective.
Everybody has their favorite brands… even when it comes to ordinary bottled water. Aquafina? Dasani? Fiji? For the most part, we are steadfastly loyal. One of my favorite TV characters, obsessive homicide detective Adrian Monk, refuses to drink anything except Sierra Springs.
These loyalties are formed early, quite often from saturated advertising across every medium imaginable. Beverage makers never relax. They push their marketing efforts at full-throttle day and night to reinforce brand image and try to win over new support. It’s a turf war out there, and every point of market share means billions in sales.
Like most consumer-facing industries, these companies constantly bombard us with clever TV spots. They take out splashy magazine ads and put up highway billboards. They have co-branded partnerships and tireless social media departments. They sponsor everything from Little League ballparks to music festivals and NASCAR races.
That spending ads up.
PepsiCo (NYSE: PEP) sunk $3.8 billion into marketing and promotions last year. Coca-Cola (NYSE: KO) sets aside up to $5 billion annually across various channels, not just for its flagship soda, but in support of Fanta, Gold Peak, Powerade and many other products.
There are thousands of corporate advertisers out there doing the same thing, some with even larger budgets. As consumers, we are often quick to tune out this messaging. But investors shouldn’t ignore the massive sums of cash being thrown around.
Just think, for every ad impression that confronts you each day, somebody got paid to create and display it.
Everyone knows the iconic “I’m Loving It,” McDonald’s (NYSE: MCD) slogan. That’s because the company spends about $1.9 billion annually (in the United States alone) trying to hawk more burgers and fries. That includes 17,000 TV commercials and twice as many radio spots.
But in terms of the biggest domestic spenders, that barely cracks the top 25.
— Progressive (NYSE: PGR) pours $2 billion into those ubiquitous commercials starring Flo and the rest of the gang convincing you to bundle home and auto insurance.
— Verizon (NYSE: VZ) invests $3.5 billion per year in the ongoing battle to attract and retain wireless customers.
— Capital One (NYSE: COF) dishes out $4 billion to ask “what’s in your wallet?”
— Walt Disney (NYSE: DIS) spends $5 billion annually hyping up its blockbuster movies and magical theme parks.
The biggest ad spender is none other than Amazon (NSDQ: AMZN), whose massive budget tips the scales at $13.5 billion nationally and $40 billion-plus globally.
Unless you live under a rock, then you probably know the heaviest spenders: pharmaceuticals, automakers, banks, media groups, fast food, retailers… the list goes on. That doesn’t include the countless thousands of smaller local advertisers whose reach extends only a few miles. And don’t forget about the Department of Defense and other federal government agencies.
Overall, advertising expenditures are closely synched to economic growth. The only real downturns in the past two decades were during the pandemic, and before that the 2009 recession. Aside from those rare blips, ad spending has marched steadily higher.
According to Ad Age (which tracks advertising across 20 different mediums), national ad spending around the United States totaled $390 billion last year. That’s about $1,200 — give or take — for every person living in the United States. The research outlet predicts spending will top $400 billion this year and eclipse $500 billion by 2028.
A few decades ago, the advertising business was a fragmented industry with hundreds of local, regional, and national competitors. But much like the accounting world, years of consolidation have left just a few powerhouses standing.
One of my favorites in this space is Omnicom (NYSE: OMC). Formed by a series of mergers and acquisitions, the group has offices in 70 countries around the globe and caters to an impressive roster of 5,000 clients. Through subsidiaries like BBDO and DDB Worldwide, it performs a wide range of services, anything from brand consultancy and media buying to graphic arts and special promotions. Omnicom serves hundreds of class-A clients, including McDonald’s, Nissan and Pfizer… just to name a few.
The recent acquisition of Flywheel Digital bolsters Omnicom’s reach in the burgeoning ecommerce realm. This newest addition expands the client base and brings a proven market intelligence platform that has enabled thousands of customers to advertise more efficiently and increase sales at Amazon and other online shopping hubs.
But if you really want to hit the sweet spot, it’s important to understand that the digital advertising world has undergone a sea change over the past five years. In the old days, buying ad space was a tedious and often manual task involving proposals and quotes. These days, it’s an automated, algorithm-driven bidding process — “programmatic,” in industry parlance.
This is where the tech in “AdTech” comes from. Programmatic media buying is handled on computer exchanges where supply side (sellers) and demand side (buyers) parties can agree to terms in milliseconds.
Of course, the end goal of every digital content publisher — from popular websites to podcasts to streaming platforms — is still to monetize traffic by filling all of the available advertising spots at the best possible rates. Sell-side advertising companies aid in that mission by helping content owners manage their ad inventory and optimize revenues.
Magnite (NSDQ: MGNI) operates the world’s largest independent sell-side ad platform. In the simplest terms, it acts as a bridge between publishers/broadcasters and brands/buyers, executing billions of monthly advertising transactions across numerous formats. If you’ve ever watched a movie at popular ad-supported streaming platforms like Pluto or Tubi, then you’ve seen spots arranged by Magnite.
We all know that linear television is slowly dying as 14,000 Americans cancel their expensive cable (or satellite) service each day in favor of a-la-carte options. But advertising budgets are still adjusting. Of the $85 billion spent on television ads last year, only $25 billion was directed to connected smart TVs. That’s rapidly changing, though, as CTV ad spend is growing three times faster — partly because that’s where consumers are being pulled, but also because this is a more targeted and effective medium.
Magnite is front and center to this revolution. By enabling partners to maximize their ad yield, the company has won steady business from Hulu, AMC, Sling and many other video streamers — not to mention CTV heavyweights like Roku and Samsung.
Ad spending volume transacted on Magnite’s CTV platform continues to grow faster than the overall industry, indicative of market share gains in this explosive field. And with enviable margins, EBITDA surged 25% last quarter, topping $50 million for the first time.
Investors have taken notice, driving the stock to triple-digit gains over the past year. Recent partnerships with Netflix and X (formerly Twitter) certainly didn’t hurt. But in football terms, we are still in the first quarter of this advertising migration, so this well-positioned stock could put more points on the scoreboard.
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