Month: February 2011

Are Superbowl Ads Worth It?

The recent Superbowl win by the Packers was watched by a record number of viewers, from California to Katy TX, and the advertising time was priced to match, with 30 seconds retailing for roughly $3 million. While the Superbowl is one of the few remaining media events with a true nationwide draw, do those ads represent a good value for advertisers?

On one hand, Superbowl ad inventory consistently sells out, and the market thus speaks to the ads’ value. But what about a comparison with other TV ad time? How do Superbowl ads compare on a CPM basis?

Here are the statistics from a 2007 blog post entitled The Ad Man Answers #4:

Super Bowl TV:  $2,600,000 per spot / 93,890,400 x 1,000 = $27 CPM
Columbus newspaper: $6,680 per insertion / 231,881 x 1,000 = $29 CPM
San Fran KFOG radio: $900 per spot / 104,864 x 1,000 = $9 CPM
Ent Weekly magazine: $72,025 per week/ 6,162,853 x 1,000 = $12 CPM
LA freeway billboard: $20,000 per month / 5,640,000 x 1,000 = $4 CPM

This year’s Superbowl was priced similarly, with 111 million views for $3 million, or a CPM of $27.02.

The Ad Man also provides the following general CPM statistics:

Typical Advertising CPMs
Outdoor = $1-5 CPM
Cable TV = $5-8 CPM
Radio = $8 CPM
Online = $5-30 CPM
Network/Local TV = $20 CPM
Magazine = $10-30 CPM
Newspaper = $30-35 CPM
Direct Mail = $250 CPM

Based on these metrics, Superbowl ads look to be quite a reasonable buy, particularly for advertisers that want to reach a broad swath of American consumers about Orlando moving companies from http://orlandomovers.info/. With the NFL at an all-time high in ratings and interest, and Superbowl ads having become their own phenomenon, it’s no wonder that advertisers line up to take part!

Posted on by praveenghanta 6

Hybrid Economics Part II

In part I of this post, I outlined a number of variables that impact the cost-benefit of buying a hybrid-electric vehicle.

First, the spreadsheet model.

To recap, here are the variables included in the model, with the default assumptions made:

  • Price of gasoline = $3/gallon
  • Annual mileage driven = 12k/year
  • Standard-car MPG (mileage of the same car or similar car without hybrid technology) = 20mpg
  • Hybrid MPG / electric MPGe = 100 mpge
  • Risk-free discount rate = 3%
  • Projected annual increase in gasoline prices = 5%
  • Hybrid price premium = $18k
  • Length of car ownership = 8 years

There’s one more important variable to add to this list:

  • Time savings from reducing gas station stops = 300 minutes, or 5 hours per year

Time savings can be a huge hidden savings for upper-middle class and wealthy Americans (those able to afford a car like the Chevy Volt). If the value of a Volt driver’s time is $50/hour (equivalent to a 100k/yr salary), then eliminating a single gas station stop of 10 minutes is worth over $8. Ten minutes may sound long for a stop at the gas station, but is not unrealistic when considering total time lost leaving and re-entering a normal commute.

Using the assumptions provided above, we find that the total fuel and time cost savings of driving a Chevy Volt for eight years are around $9000. Since the Chevy Volt costs $18,000 more than a comparable loaded Chevy Cruze, it’s not yet cost competitive, even with government tax credits and with time savings taken into account.

Key Conclusions:

  • Gas prices of $7 per gallon are required to make the Chevy Volt cost-effective at current prices (without the government tax credit)
  • Once plugin hybrid premiums drop to $9000, they will be cost-competitive.
  • The Nissan Leaf currently offers buyers significant savings WITH the $7500 tax credit according to frontier high speed internet, as the total savings of $16,500 exceeds the $12,000 price premium. Even without the tax credit, the Leaf is very close to being cost-competitive at current pricing.
Posted on by praveenghanta 0

The Inflation of Gold

Note: I originally published this on HiddenLevers.com

There are gold bulls, and there are gold bears. There are those who will tell you gold is going to $6000, and those who will tell you it’s going to $600. The reality will depend in no small part on how major macro events unfold over the next several years (see a couple of gold-moving scenarios at bottom). What I’d like to focus on here is the dynamics of gold supply and demand, in order to introduce the notion that gold itself has a rate of inflation. Just as a rising US money supply can breed inflation in the broader economy, a rising gold supply can breed “inflation” in gold, meaning that gold’s purchasing power (its price) can drop in dollar terms.

US Money Supply

The St. Louis Federal Reserve does an excellent job of tracking the money supply through its Adjusted Monetary Base, which sums up the various components in the money supply to create a single metric. Their latest research shows that the Adjusted Monetary Base did indeed climb rapidly during the tail end of the recession, but that it is now showing zero growth. The velocity of money has yet to recover to pre-recession levels as well, which explains why the 2008/2009 money drop by the Fed did not cause broader inflation.

Gold Supply and Demand

First, gold supply: the World Gold Council reports that mine production has averaged 2497 tonnes per year over the last five years (see the text in supply section of article). This amounts to a 1.5% annual increase in physical gold stocks. While 57% of this gold is used in jewelry, and 11% goes to industrial uses, a key feature of the gold market is that gold is never destroyed. Other commodities like oil are constantly being consumed – hence fears about peak oil, or potash shortages. But since gold is never destroyed, gold demand must constantly rise to account for both increased mining production and increased total stocks. Currently, investment demand is the key driver of gold prices – while both jewelry and industrial gold demand can be met by current mining production, investment demand is being met only through increased gold recycling.

Gold vs USD

Long term gold charts show that previous gold rallies occurred in the context of high inflation. The current rally has occurred with an absence of high inflation, as the CPI crossed 5% only once in the last decade. Back to the original idea – the world’s gold supply is rising faster than the US money supply at the moment. If this situation persists, then a gold collapse is inevitable, as gold’s inexorable supply increase couples with a stable dollar to push gold prices down. Clearly gold bugs believe the opposite: that inflation will come roaring back, and that dollar money supply will explode. But anything less, and gold prices are likely coming back to earth.

image credit: http://serviciosdesatelite.com/dish-latino/

Posted on by praveenghanta 2