Money Madness

The CBS Evening News (with Katie Couric) showed an interesting piece on March Madness one night this week. It made good business sense. The N.C.A.A. national championship basketball tournament is broadcast over the CBS network.

The theme of the Evening News spot was, “March Madness means big business.” The tournament came to be called “March Madness,” because the nation goes mad, apparently over the prospect of watching the tournament, and businesses and advertisers can make big bucks off the fervor.

The madness hasn’t quite kicked in yet, though it’s already March 21. The new Nielsen ratings, published today, don’t show a sign of March Madness anywhere in its top 10 ratings, either in broadcast or cable television categories. In broadcast, citizens are much more mad about “American Idol,” with its No. 1 rating of 17.2 for the week of March 12.
In cable, the leading frenzy is over World Wrestling (Raw), with a rating of 3.7. In fact, the nation’s viewers showed themselves to be much more crazed about SpongeBob, last week, than they did basketball.

Well, then, shouldn’t the Evening News be guilty of false advertising, with its spot about March Madness and big business? Not at all. March Madness is a big business, because it is a media business, and the Second Law of Media states: “The media is an exercise in the power of small numbers.”

Oprah Winfrey is maybe the best example of this power. Oprah is an international entertainment celebrity, among the wealthiest of these celebrities, and she does it in an unusual way: she earns it. She is among the most-admired women in the country. This fame is based on a television program that in the Nielsen syndicated program ratings ranked third in the latest ratings behind “Wheel of Fortune” and “Jeopardy.” Her rating was 6.1, roughly 7,900,000 viewers, meaning 93.9 percent of the television universe and its millions of viewers were doing something else.

But a 6.1 is enough to make a person rich and famous. Advertisers drool at the propect of getting their product before 7.9 million sets of eyeballs at the same time. It took an 8.8 to crack the broadcast top 10 last week, so let’s say that March Madness captured a Nielsen rating of 5. Is it possible, in a nation crazed by college basketball, that 95 percent of Americans chose to do something else last week?

Yes, but 5 was enough for the advertisers and the network. Here’s a formula for the Second Law of Media:

NRP X 1,102,000 X 2 X Response X Price minus Ad Cost (Time + Production) = Revenue.

A Nielsen Rating Point is one percent of all U.S. television households, which at last count numbered 110.2 million. The 2 represents an average of people watching the set. Response is the percentage of the viewership that might actually go out and buy the product. Price is the price of the product. Ad cost is the cost to produce the commercial (which is a one-time cost), plus the cost of advertising time on television.

Let’s say a 30-second commercial for Bud Lite, the favored beverage of the basketball-watching demographic, had a production cost of $1 million. Bud paid CBS $150,000 for 30 seconds of time. The game has a Nielsen Rating of 5, and the commercial achieved a response of 3 percent (which is an excellent response percentage). A 12-pack of Bud Lite is $11.05. For the 30-second commercial, revenue is $2,503,130. The second time, and thereafter, that the commercial is shown, take out the one-time production cost.

College basketball may not be the true March Madness for most Americans, but it sure is for Bud Light, CBS and the N.C.A.A. This weekend and next, as we get into the rounds of “Sweet 16” and “Elite 8,” ratings will soar into the teens. Go figure that impact.