NBC isn’t spending $4 billion on the Olympics just for ratings glory.
Instead, the staggering investment amounts to a seemingly risky but arguably savvy play at boosting the value of NBC’s growing asset base.
The stakes are huge for NBC, which hopes to parlay the world’s premier sporting event into much more – happier affiliates, stronger owned stations, more powerful cable networks and, yes, impressive ratings and ad sales – while achieving unparalleled dominance in sports programming.
“It helps them on several fronts,” says David Londoner, managing partner at Schroder Wertheim, who called the bold move “a stroke of brilliance.”
The network last week signed the largest ever sports-rights deal, paying $2.3 billion for the 2004, 2006 and 2008 Olympics after securing the 2000 and 2002 games just four months ago.
With rights to next year’s Atlanta contest expected to generate $700 million in ad revenues, the web’s continuous run for the gold is spoiled only by CBS, which has rights to the 1998 winter games. Still, NBC has six of the next seven Olympics, undoubtedly the world’s leading sports event.
“This was a momentous decision for us,” says NBC president Robert Wright, who calls it a “cornerstone” of the network’s strategy aimed at capturing big-event programming and re-expressing it in several formats, from cable distribution to an Olympics database on new partner Microsoft Corp.’s online service.
Array of aims
“When we decided to make such an ambitious bid, we looked at it on several levels beyond revenues we will be able to generate from advertisers,” says NBC Sports president Dick Ebersol, who weeks earlier plunked down $400 million for a continuing share of Major League Baseball rights, on top of basketball and football. “It makes us the premier sports network, hands down. It obviously strengthens our hand with retransmission consent. It means an opportunity to generate more subscriber revenue from CNBC,” which will carry cable coverage along with the MSNBC channel unveiled last week.
Even as a pure network programming ploy, Ebersol says, “This is about as close as you come to something that long-term is a guaranteed mass event, when more and more the business becomes niche programming.”
At a press conference Dec. 12 in NBC’s Studio 8-H, with “Saturday Night Live” sets obscured by a smoky Olympic torch, IOC and network officials marched to the beat of the Games’ theme music to unveil the details: NBC will pay $793 million for the 2004 summer games, $613 million for the winter 2006 games and $894 million for the summer 2008 games.
Each figure is equal to the rights fees for the Olympics played four years earlier, plus a meager 3% inflation adjustment for each year between them, a sweet deal given what Rupert Murdoch’s Fox network would easily have offered if given the chance in a more typical bidding auction.
Still, NBC’s in it for more than profit, which might not even be realized if the ad market goes down the tubes.
“We don’t go into the Olympics with a profit motive,” says Wright, who instead views the Games as a key way to “enhance” the network while recouping costs. “The real issue is not to take a big bath.”
The rights package, unprecedented in both its scope and early timing, came with two important conditions: NBC will have no say in where the future games are played, and the network can’t air any Olympics coverage on pay TV, after a 1992 pay-per-view experiment frustrated fans and lost the network millions.
Instead, NBC will air 160 to 180 hours on broadcast TV, Ebersol says, with the remainder on two or more of its cable networks, currently CNBC, America’s Talking and a planned all-news channel.
The network executed its mission with a stealthy first strike, opening rights discussions on the later Olympics even before network honchos had signed contracts for the August deal, continuing them through the fall and secretly nailing an agreement on Dec. 6.
As a result, the net caught its rivals by surprise, and none even had the opportunity to submit bids of their own.
“There were no other networks involved,” says Dick Pound, chairman of the Intl. Olympic Committee’s TV negotiations panel. “They may have been doing some planning, but they weren’t doing any talking, at least not to us.”
Pound says the IOC was happy to settle for a 3% inflation adjustment, far lower than it could have won with a typical auction, in exchange for NBC’s continuity as a marketing and broadcast partner.
“We were more than willing to trade anything over 3% inflation for the stability and predictability this agreement brings,” Pound says.
Continuing a policy already in place, the IOC and NBC will evenly split broadcast ad revenues once NBC recoups rights fees, production and other costs and ad-agency commissions. Under that formula, the IOC will net an additional $36 million in Atlanta next year.
IOC sources, clearly upbeat about securing a long-term commitment from NBC, told Variety last week that they “haven’t ruled out the idea of a multi-games deal” with the European Broadcasting Union, which like U.S. networks has until now negotiated for the Olympics one year at a time. The EBU represents the interests of the major pubcasters across the continent.
EBU insiders however, refuse to comment on that idea, apparently opting to keep its strategy close to the vest. As NBC has shown, says one insider, “it’s a very competitive world out there.” Having already sewn up domestic broadcast rights for the next 12 years, both the IOC and NBC similarly will attempt to sell long-term sponsorship rights, in part to help lock in profits through extended contracts and to better coordinate their marketing efforts.
But few execs are likely to take a flier on games that could be played long after some of them retire.
“Most of our clients don’t know what they’re doing a year from now, vs. eight – what is it, 12 years out,” says Steve Grubbs, senior VP-director of national broadcast buying at BBDO Worldwide. “It’s a little difficult not knowing what the business conditions would be at that part in our lives,” says Jan Soderstrom, senior VP-advertising and promotion at Visa USA, a longtime worldwide Olympics sponsor.
Still, Soderstrom and others applaud NBC’s bold strike. “This is showmanship, how you keep a network vital,” says Jerome Dominus, senior partner and director of the national broadcast group at ad agency J. Walter Thompson USA. “I don’t know what network shares will be in 2008, but I know the Olympics will deliver a huge audience.”
/. Max Robins in New York and Michael Williams in Paris contributed to this report.