Wednesday, September 21, 2011

The Myth of the CPM
By: Mike Einstein

Let's talk about the real cost of branding and the myth of the CPM.

Our journey to the truth about this outdated model begins with a January 2011 Webtrends analysis of CTRs and CPCs for display advertising across twenty vertical categories on Facebook. This analysis reveals an average CTR of 0.065% (approx 1-in-1538) with an average CPC of $.56. The average CPM "impressions" across all 20 categories = $.36 (BTW, ad costs on Facebook have risen since last January, but these figures will suffice for our purposes here).

On the other hand, if we take the fork in the road to television, we encounter a wildly different landscape involving the same advertisers and the same audience, with CPM impressions for adults 18-49 via a single thirty-second TV spot in Grey's Anatomy to be $42.39 (based on 5.24 million viewers 18-49 and an average cost per :30 of $222,113).

Thirty-six cents versus forty-two bucks for the same thousand impressions! Ahh, the plot thickens...

What's wrong with this picture? Plenty, obviously. But the fact is, neither example even begins to address the real cost brand advertisers incur to reach an actual person, because both examples refer to scaling the media supply vs. reaching the audience. The case can be made that Facebook, at thirty-six cents per thousand impressions, represents an absolutely worthless branding option. Not my opinion, but rather the opinion of the folks doing the selling and buying at that price. I mean, let's get real here. If these impressions were actually worth anything, wouldn't/shouldn't they cost more than $.00036 each? The only quantifiable component in this analysis is the 1-in-1538 clickthrough at $.56, which translates to a CPM for actual, measureable impressions of $560.00. Sort of puts that thirty-six cents figure into perspective, doesn't it?

And the real cost to reach adults on Grey's Anatomy is far more than $42.39. That figure is calculated on the basis of how many set top boxes receive a single thirty-second spot, not how many people view it, and doesn't account for growing DVR usage (now approaching 50%) or the feeding frenzy that occurs in the commercial breaks during real-time viewing. The point is, impressions that reach only set-top boxes are, for all intents and purposes, as worthless as the impressions on Facebook that reach virtually no one.

But it gets even worse, and more complicated. Using the Grey's Anatomy example, what is the cost to a brand advertiser that buys a :30 in the show every week for 13 weeks? The case can be made, and the cume ratings would confirm, that the audience for Grey's Anatomy doesn't vary significantly week-to-week. That means the actual cost to reach the set top boxes for the same 18-49 adult demo in Grey's Anatomy over 13 weeks is more than five hundred dollars per thousand (13 x $42.39 = $551.07), almost as much as Facebook!

Let's view this in the macro for a moment and use as our reference point a certain automotive manufacturer that spent $3 Billion last year on measured media in the US. If we figure the US car-buying target audience to include 150 million adults, then the aggregate CPM this manufacturer incurs to reach that demo over the course of a year = $20,000!

There are two very widespread misconceptions at play here. The first is the total bastardization of the concept of reach. Reach is an audience measurement, not a supply-side metric, yet everybody misconstrues and manipulates its true meaning to impart false value to impressions in the media supply.

The second widespread misconception is that reach can be evaluated in a vacuum. The truth is that all established brands are in the frequency business (BTW, frequency is a pure reach metric). How else can you reconcile a car company spending $3 Billion dollars a year on measured media? In reality, every one of its brand messages falls on the frequency curve, at an average cost of $20 per person (a CPM of $20,000), per year, in this key car-buying demo. This figure includes the illusory impressions on Facebook as well as the set-top boxes and DVRs on television. In fact, taken to its illogical extreme as a brand investment strategy, this same automotive company spends $40,000 per thousand adults over two years, $60,000 per thousand adults over three years, etc.

At the end of the day, the only media metric that is truly accountable is the CPC. This represents the cost to effect an actual person arriving at a specific branded destination. And yet the digerati are distancing themselves from the clickthrough in droves and adopting instead the same soft metrics that they previously accused their broadcast brethren of hiding behind. Why? Because the illusion of what you're getting at thirty-six cents per thousand on Facebook sounds so much better than the reality of what you're getting at $560.00 per thousand from Facebook. But, who's counting? Besides, how do you measure an illusion?

So, what have we learned here? Three things: 1) that brand advertising should be viewed as an investment, 2) that CPMs are a myth, and 3) that the best measure of true audience interaction is the clickthrough.

Want to know the real cost of actually reaching someone? Look for a media model that has the guts to charge per click.

Questions? Comments? Email Me

Original Article: The Myth of the CPM

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