CBS spreads wealth on the Net
EmptyThe seeds of this year's March Madness on Demand began in November 1999, when CBS paid $8 billion for comprehensive rights to the NCAA men's basketball tournament.
More than eight years later, college hoops is sprouting all over the Internet, with CBS Corp. announcing Tuesday that more than 200 Web sites will be able to access online video of the event — even competitors like ESPN.com.
In the days before widespread broadband, TV was the only game in town. But CBS Sports was making an expensive bet that some of the then-ancillary rights — Internet, radio and licensing — would become a growing portion of the roughly $500 million in annual revenue that the network will realize this year from March Madness.
"We were not going to commit the kind of dollars that we did if the Internet wasn't included," Sean McManus, president of CBS Sports/News, said of the original 11-year deal. "We all thought that the Internet rights would be worth something at some point."
And for the first time, McManus said, online revenue is becoming a significant part of the picture.
Most of the revenue still comes from TV, around $450 million this year. But after a start of almost nothing from the Web, CBS Sports has in recent years built a growing business. Ad revenue will be at least $21 million this year from online, up from last year's $10 million and $4 million in 2006, when CBS moved to an ad-supported model. That's quite a ways from 2005, the last year CBS offered a subscription model, when revenue was about $250,000.
Financially, it's a big boost because the majority of the production costs were going to be spent by CBS anyway. The only real increase is bandwidth, depending on how many people will access the site. As a result, CBS execs say, it's almost all gravy.
"It does pretty much fall to the bottom line," McManus said.
There's been a major shift in CBS' thinking about how to package the games online. The network once believed that built-in protections of online blackouts of early-round games available on local TV and a full blackout of the final rounds would protect TV viewership and ad revenue.
But this year, for the first time, the network will stream live every single game right up through the championship. That's because research shows that most of the people who watch online aren't near a TV, either because they're at work or for another reason.
"All of the viewing online is additive, not cannibalistic," said Jason Kint, senior vp and GM at CBSSports.com. Online viewing has grown from 25,000 people who paid about $10 each in 2003 to 1.27 million in the first year that the online streaming was free. Last year had 1.4 million unique viewers.
Those numbers should skyrocket this year with CBSSports.com's "developer platform" in effect. That application will allow sites that vie for traffic with CBS, including Yahoo Sports and SI.com, the ability to access online tools that make the video player just one click away.
This year also is the first in which users won't have to register to watch games, though there is still a two-tiered system. So-called "VIP" status, with a cut-off date for preferred access, already has about 300,000 registrations on track to 500,000, slightly above 2007's 467,000. Other visitors who haven't signed up before will have to wait before being able to see games.
Another Internet touchpoint for March Madness on Demand is Facebook, which announced last month a deal with CBS to launch an application that would provide brackets for picking tournament winners. On Tuesday, CBS Interactive president Quincy Smith noted the application already is the fastest growing application on Facebook, amassing 600,000 users. He projected it could hit 3 million by the end of the tournament.
That kind of audience could help CBS draw sponsorships to open platforms. "It might be good to see whether a major media brand can take its relationships with sponsors and bring them to Facebook," Smith said.
Andrew Wallenstein in Los Angeles contributed to this report.