NBC to Become Olympics' Biggest Loser?

|
 |  Includes: CBS, CMCSA, DIS, GE, NWS, TWX
by: Diane Mermigas

If NBC (NYSE:GE) can’t bring home the gold from the Vancouver Olympics, don’t expect its prospective new controlling owner, Comcast (NASDAQ:CMCSA), to pay dearly again for the right to lose big bucks on exclusive games coverage.

NBC Universal has been scrambling to close the gap on an anticipated $250 million loss before the Feb. 12 opening ceremony. The bottom line hit, which is uncharacteristic of tightly managed Comcast, the country’s leading cable operator, was to have been offset by exploiting Olympics coverage across new digital media.

NBCU made an unprecedented investment to provide coverage of the Vancouver Games over mobile and other Internet-connected devices as well as social networks such as Facebook and Twitter. Olympics digital revenues have been so inconsequential in the past, NBCU has not broken them out.

The logistics and cost of covering 17 consecutive days and more than 800 hours of competitive sports and pageantry in the Pacific time zone have become difficult to offset in a strained advertising environment. NBCU executives concede they did not anticipate the deep recession when committing $820 million for the rights to the Vancouver Olympics.

Apps for mobile devices, downloads, on-demand viewing, tweets, blogs, merchandising and other possible revenue-generating options still have limited collective value. The majority of revenues come from advertising online and on NBCU’s broadcast and cable TV networks.

More than 400 hours of live streaming on NBCOlympics.com and 1,000 hours of replays across all outlets are tantamount to a pricey promotional vehicle for NBC’s fourth place program schedule. It is too early in the game to fully benefit from Comcast’s new TV Everywhere, which allows subscribers to view cable programs on any device or platform. NBC will use its own authentication process for multichannel subscribers’ access to premium Olympics coverage, and has been developing a singular metric to measure total cross-media Olympics audiences.

Overall, the Vancouver Olympics may do little to forge the economics of multi-media access, addressable advertising and measurement, and paid content windows which will be a critical for a Comcast-owned NBCU.

While this is the first loss in NBC’s six consecutive Olympics telecasts, the decline in television ad revenues, the fragmentation of audiences and marketing dollars, and the instability of paid content models create uncertainty around future Olympics bidding. NBCU’s tangle with China’s government over real-time coverage of the 2008 Beijing Games illustrates yet another wild card.

Jeff Immelt, CEO of General Electric, NBCU’s parent, recently said the Olympics have become a no margin business that will contribute to the media company’s operating loss in 2010. That has to send chills down the spine of Comcast CEO Brian Roberts, who could spend as much as $17 billion to fully buyout GE and become NBCU’s sole owner in five years.

In 2003, NBC paid about $2 billion for TV and online media rights to both the 2010 and 2012 Olympics set for London, which was nearly 50 percent more than it paid for prior games. While the Olympics remain a valuable mass audience venue for blue chip advertisers, there are more cost effective digital media alternatives to connect with target consumers. NBCU hopes to sell as much as $700 million in advertising and deliver on a 14 prime time ratings guarantee, barring complications such as the inability of injured US all-star downhill skier Lindsey Vonn to compete.

NBCU says it will bid for the 2014 Olympic rights along with Fox (NASDAQ:NWS), ESPN/ABC (NYSE:DIS) and TimeWarner (NYSE:TWX) /CBS. As the regulatory review of their proposed merger contributes, NBCU will consult with Comcast, which is expected to acquire 51 percent control by early next year. It is difficult to imagine any TV and Internet rights holder not seeking better ways to share Olympics risks and assure rewards in this changing media environment.

The revenue-sharing arrangement ESPN/ABC proposed to the International Olympic Committee during 2003 bidding and the planned partnered bid by CBS and Time Warner for the 2014 games in Sochi, Russia represent new approaches. The games eventually will return to the US, where advertising and media companies underwrite much of the cost of the Olympics, comprising about 60 percent of the IOC’s overall carriage fees.

Comcast will have to get creative if it wants NBCU to remain in the Olympics business in order to build a viable rival to Walt Disney’s ESPN by combing its regional sports, Versus network, Golf Channel and Comcast.net sports with NBC Sports and NBCU’s Universalsports.com platform (which will serve as an Olympics news desk this month). Comcast’s plans to partner with the US Olympic Committee to launch a cable channel dedicated to continuous Olympics coverage was abruptly halted last year by the IOC.

The mounting financial risks of Olympics coverage and, indeed, an advertising-dependent broadcast TV system may be too great without such dramatic changes in business models, as witnessed by NBCU’s 30 percent decline in fourth quarter earnings.

Long-time NBC Sports chairman and Olympics executive producer Dick Ebersol may have unknowingly reset expectations. When NBC refused to match ABC-ESPN’s winning bid for National Basketball Association TV rights, Ebersol explained, “If winning the rights to a property brings with it hundreds of millions of dollars in losses, what have you won?”

“When faced with the prospect of heavy financial losses, we have consistently walked away and have done so again,” Ebersol said.

Disclosure: None