NBC gambles on Vancouver Olympics
Games could cost NBC and GE as much as $250 million
NBC successfully has battled network rivals, time differences and controversy during two decades of Olympics. But on the eve of the Vancouver Winter Games, the Peacock might bow to an intractable foe: economics.
With the recession and a whopping $820 million rights fee, NBC and corporate parent General Electric could lose as much as $250 million.
"It would be tough for anybody," says John Skipper, executive vp of ESPN. "The current economy is overwhelmingly a factor."
The Peacock's troubles surprise many observers, who have gotten used to NBC and its impresario, Dick Ebersol, meeting often-Olympian challenges. Vancouver is NBC's sixth consecutive Olympics, the longest streak for a U.S. network. Ad sales began slowly but are now on track. NBC Universal will offer more than 800 hours of live coverage, more than the past two Winter Games combined. There's buzz about Team USA. And the location couldn't be better unless the skating competition took place at the Rockefeller Plaza ice rink.
In 1995, when NBC spent $2.3 billion for TV rights to the 2004, 2006 and 2008 Games, it was the biggest sports-rights deal in history. The network followed in 2003 with $2 billion for 2010 and 2012. Fox Sports bid $1.3 billion; ESPN/ABC proposed a revenue-sharing arrangement with the International Olympic Committee.
"NBC thought it was worth a heck of a lot more than we did," Fox Sports chairman David Hill says. "I said at the time, 'It'll be interesting to see who time decided was more accurate in their bid.' "
In Vancouver, it's a day of reckoning.
"You have to wonder what possessed them to up the ante in 2003," says Rick Gentile, former executive producer of CBS' Olympics telecasts. "It's just conceivable that they bid it in a bullish economy and figured, 'Let's go for it; let's make them an offer they can't refuse.' "
NBC believed ad sales would keep pace. Its long Olympics history helped: It has cut costs with technology, uses essentially the same set and equipment since Sydney in 2000 and sends significantly fewer staffers to the Olympics than ever before. But the economy and rights fee hurt.
"They weren't really anticipating having the economic problems that they've encountered in the last several years," says Dennis Mazzocco, a Hofstra University professor and producer of 12 Olympics telecasts. "It was a gamble, no question."
NBC believes it isn't all about profit or loss. Most if not all sports-rights deals, even the NFL, spell a loss despite high ratings. It's even more the case for the Olympics, which carry a cachet above all other sporting events. "The Olympics are worth more to NBC than the dollar amount they get in ad revenue," says Dom Caristi, a Ball State telecommunications professor.
From a ratings standpoint, it's hard to argue with what NBC called "the halo effect." The Games will lift the network's primetime, "Today Show" and CNBC/MSNBC to a stratus they haven't seen for a long time: NBC is guaranteeing Madison Avenue an average primetime household rating of 14 for the 16 nights of the Vancouver Games.
With the exception of Fox's "American Idol," nothing will come close. The audience composition is an advertiser's dream: Family-friendly programming for adults 18-49 and 25-54, many in affluent households that don't usually watch TV.
"That's pretty compelling," one ad buyer says. "It will win every night. There's no property on TV that will pull double-digit ratings per night. The demos will be triple over what's normal."
NBC has received an average of $400,000-$575,000 per 30-second spot for primetime Olympics telecasts. Several multiyear deals including with General Motors and Home Depot weren't renewed after Beijing, and much of 2009 was ad-sales challenged; NBC has said sales likely will reach the level of Salt Lake City in 2002 and Turin in 2006.
That won't be enough to cover the increased rights fee, but if the U.S. rakes in the gold and NBC gets a premium for unsold inventory during the Games, the revenue picture could improve. A stronger scatter market for primetime inventory will help ad sales, making them more of a value than normal.
There are other benefits to NBC, not the least of which is a respite from the ruckus over Jay Leno and Conan O'Brien that has defined it this month.
"They have 16 days to bury the late-night drama a little better and hope it fades," Carat analyst Shari Anne Brill says.
NBC's Jeff Gaspin even went so far this week as to call the Olympics "a cleansing moment" for the network -- and one that offers a perfect cross-promotional platform for touting Leno's new slot and new 10 p.m. shows.
But when the flame goes out, NBC will be left with the same underperforming primetime it had before it was lit.
After Vancouver, NBC has only one Olympics remaining on the books: The 2012 Summer Games in London. It paid $1.18 billion for the right to carry them, up from $894 million for Beijing. If it can't turn a profit in Vancouver, what are the chances in London?
Pundits speculate that NBC Uni, by then controlled by no-nonsense, fiscally prudent Comcast, will not easily be drawn into an over-the-top bidding war for U.S. rights to the 2014 and 2016 Games.
NBC's primetime ratings depend on events being live on the East Coast. Time differences were ratings trouble in Athens, Turin and especially Sydney. In 2008, all of Michael Phelps' record-breaking swims were live in primetime (mid-morning in Beijing) thanks to Ebersol's diplomacy with the IOC. It's difficult to imagine a similar deal could be struck for the London Games, where primetime in the U.S. would be after midnight GMT.
Although Comcast isn't likely to stand for Olympic-sized losses, Mazzocco doesn't count out NBC or Ebersol.
"He's a visionary," Mazzocco says. "It was Dick Ebersol who fashioned the argument to GE to get them to bid on the Olympics."
Gentile says there's a lot of upside to retaining those rights.
"It's not worth losing $200 million, but is it worth it as a major investment? Yes," he says. "Their morning show will be impacted, late-night, primetime, weekends. They get this kind of opportunity every two years, and it really is an extraordinary event. It'll be dominating almost every medium for the better part of two weeks."
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