Are the Olympics Worth It?
NBC Universal says it will drop $250 million on the Vancouver Games, but suitors for the next round of Olympic rights are already lining up
By Marisa Guthrie -- Broadcasting & Cable, 2/8/2010 2:00:00 AM
Broadcaster streamlines new-media approach to Winter Games
As NBC gears up for the Vancouver Winter Olympics, the network is banking on the power of sport to transfix audiences and transform the conversation from corporate missteps to athletic prowess. NBC Universal chairman Jeff Gaspin has said that Vancouver will be a “cleansing moment” for the network, which has endured a highly scrutinized primetime failure coupled with a highly public late-night talent maelstrom, all as the new owners wait to swoop in once Washington signs off.
In other words, Shaun White cannot get on that halfpipe soon enough.
But no matter how many times The Star-Spangled Banner echoes over medal ceremonies in the regal mountains of British Columbia, NBC says it will lose a quarter of a billion dollars on the Vancouver Games. And if the network fails to deliver its ratings guarantees, the news could get worse.
Yet despite the bleak financial outlook, NBC Universal and others including Disney, News Corp., Time Warner and CBS (the latter two reportedly jointly) are considering lining up for a shot at the next round of Olympics rights. And, not for the first time, many industry insiders are wondering if the Games are worth the price tag.
The Olympics and other major sports franchises such as the NFL and Major League Baseball have traditionally been loss leaders for broadcast networks. But conventional wisdom held that the exorbitant license fees were worth it for the halo effect a Michael Phelps and his seven gold medals has on the rest of the network. The Olympics gives companies a massive platform from which to promote their non-broadcast businesses, from Disney's theme parks to Comcast's Versus network and VOD offerings.
But lately, the worth of such an endeavor is increasingly uncertain. Besides escalating rights fees, costs include production, hospitality and marketing outlays, and in the case of General Electric, a $200 million Olympic sponsorship.
But it all begins with the rights fees. Irwin Gotlieb, the chief executive of GroupM, which does about $80 billion annually in billings, has pronounced sports rights fees “totally out of control.” Jon Swallen, senior VP of research at TNS Media Intelligence, suggests that we may be in a “sports rights bubble.”
The economy, according to Andy Donchin, executive VP and chief investment officer at media agency Carat, is giving marketers pause. And it may also temper the next round of bidding.
“I'm not saying the escalation is going to stop, but there may be networks that are more likely to say no, to put the brakes on and not create a bidding frenzy,” Donchin says. “They may want the event, bid up to a point and then say, thank you but no thank you.”
And that's the sense the International Olympic Committee is getting. While executives from companies like News Corp. and NBCU have predictably spoken about only considering more economically responsible proposals, the global recession has already delayed the bidding for the next Olympic package, the 2014 Winter Games in Sochi, Russia, and the 2016 Summer Games in Rio de Janeiro.
GE-NBCU paid $2 billion for the rights to Vancouver and the upcoming 2012 Summer Games in London way back in 2003, before the financial collapse sent the economy into the ditch. Even then, the network vastly outbid others at the table, including ESPN, which proposed a revenue-sharing deal, and Fox, which demurred on the IOC's stated goal of $2 billion and offered $1.3 billion instead.
Industry observers have wondered how you model the ad marketplace seven months out, much less seven years. “The further out in time you go, the greater the risk that the actuals diverge from the projections,” says TNS' Swallen. “And when the rights payments are measured in billions of dollars, the financial consequences of a bad forecast can be very, very large.”
The next Olympics package is a mixed bag for potential U.S. rights holders. Rio de Janeiro may not have Chicago's hometown appeal, but the Brazilian city does not present anywhere near the time zone challenges of Sochi, which is eight hours ahead of New York. NBC Olympics Executive VP David Neal, who visited the Olympics site in Sochi shortly after the Beijing Games, said that Sochi is nevertheless attractive and shares similarities with Salt Lake City, the site of the highly successful 2002 Winter Games.
“The airport is right there near the Black Sea,” he says. “And in less than an hour you're up in the Krasnaya Polyana [ski resort] where all of the mountain events are. Their plan is innovative because it's really just two venues. All of the ice venues are grouped right down by the seaside. And then all of the snow venues are up in the mountains. It's a very efficient plan.”
But as long as there are multiple bidders, despite NBC's Vancouver bath, the rights fees could keep rising. The NFL, for example, just gained about a 5% increase in its recent round of TV deals.
Before the Comcast-NBCU marriage, observers expected ESPN to be the bidder to beat. While Comcast may have changed that equation, many still expect Disney to win out.
“The last few Olympics have been break-even or just a little profit,” says Deana Myers, senior analyst at SNL Kagan. “It makes sense for the Olympics to be on a sports network because they can [amortize] more of the content.”
An Effective Platform?
But the Olympics still deliver big, broad audiences. And constant arguments about tape-delaying coverage aside, the promise of DVR-proof programming attract advertising dollars. GE expects total ad sales for the Vancouver Games to come in between $650 million and $700 million on a 14.0 primetime ratings guarantee.
While NBC will have its every-other-year grand promotional platform, the question remains how effective a tool it really is.
NBC will use Vancouver to let viewers know about its new 10 p.m. lineup in the wake of the Jay Leno Show cancellation. But the network's executives know that an Olympic push is no guarantee of success.
Kath & Kim, My Own Worst Enemy and Heroes received copious promotional consideration during the Beijing Games. Of the three programs, two are no longer on the air and the third is experiencing its least-watched season ever.
“Promotion doesn't guarantee success, but it does give NBC the opportunity to get the attention of a very significant audience,” says Neal Pilson, former head of CBS Sports who now runs his own media consulting company. “But if the program is lousy, that's the end of the story. You get sampling and sometimes the sampling is so efficient that so many people see it's a terrible show [and] it disappears immediately. It's a double-edged sword.”
Courting a Wider Audience
A proportion of the audience for the Olympics and other big events will inevitably be a borrowed audience, so networks end up pitching their wares to many uninterested consumers. One factor in ABC's decision to give up Monday Night Football was the disconnect between the male audience watching the games and the network's female-targeted primetime.
Winter Olympics viewers, according to one rival network executive, “aren't your traditional network television viewers, and they're not your traditional NBC viewers. Your promos are generally the same kind of promos you would use when you're talking to your audience. A lot of these viewers who tune in to these big events are inundated with network promos. And they go, 'Well, that's why I don't watch network television.'”
NBC has a raft of new programming to promote (Parenthood, The Marriage Ref, Who Do You Think You Are?) and new time slots for others (Law & Order, Law & Order: SVU, Trauma), and it will remind viewers that Jay Leno is moving back to The Tonight Show.
“That's a lot of information,” adds the executive. “They have to go from a 17-hour network to a 22-hour network. [Football season is over], so they've got a whole new Sunday night. And on top of that, they have to remind viewers that they made this terrible mistake and they're rectifying it by putting Jay back in late night.”
Of course, if the Vancouver Games do end up helping NBC find its footing after a very public debacle, executives there will probably decide it was worth the $250 million. And some observers suspect that GE chairman Jeffrey Immelt's public statement about Vancouver losses are simply the first move in NBCU's future negotiations with the IOC.
“It's a question of setting expectation levels,” Pilson says. “I'm sure Comcast and GE and NBC have had discussions about the upcoming negotiations, and I would think that given the importance of the Olympics to NBC, Comcast would support an NBC effort to retain that franchise.”
Mere days after the IOC's Richard Carrión stated that he was hoping to get more money in the next Olympic bid process, Immelt went public with GE's prospective losses on Vancouver: $200 million. About a month later, GE revised that estimate to $250 million.
“The timing was suspicious,” Pilson adds. “I think it was an effort to persuade Mr. Carrión that maybe he shouldn't be thinking about generating more money, but maybe he should be thinking about generating less money.”
As the TV audience continues to fragment, the Olympics are still a guaranteed viewing phenomenon. And with several parties kicking the tires and the world's economic slide at least showing signs of slowing, the IOC may still hold the upper hand.
Rights Fees Soar, Profits Nosedive
Vancouver Games expected to lose a bundle
|Year||Network||Location||Rights Fee||Profit (Loss)|
NOTE: TNT paid $50 million to CBS for certain cable rights to the 1992 and 1994 Winter Games. Each network handled its own ad sales.
SOURCE: SportsBusiness Journal, CMR
|1992||CBS/TNT||Albertville, France||$300 million||N/A|
|1992||NBC||Barcelona||$401 million||($99 million)|
|1994||CBS/TNT||Lillehammer, Norway||$300 million||$40 million|
|1996||NBC||Atlanta||$456 million||$20 million|
|1998||CBS||Nagano, Japan||$375 million||$30 million|
|2000||NBC||Sydney||$705 million||$50 million|
|2002||NBC||Salt Lake City||$545 million||$75 million|
|2004||NBC||Athens||$793 million||$70 million|
|2006||NBC||Torino, Italy||$606 million||$60 million|
|2008||NBC||Beijing||$894 million||$100 million|
|2010||NBC||Vancouver||$820 million||($250 million)*|
Ratings Trigger Dollars
Advertisers pay for Olympics eyeballs
|Year||Network||PrimeTime rating (HH)||Price Per Spot*|
|*For 30-second primetime spot
SOURCE: SportsBusiness Journal, CMR
It seems the only loss in a long time is this year. Did you notice how BAD the economy is? It's the worst it's been since the Great Depression. People are out of work everywhere, no jobs being created, credit being reduced or cut off. One would EXPECT there to be little or no profit if the economy is in the toliet, which it is.
Eric Post - 2/8/2010 11:06:15 AM EST
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