Fans of the Olympics are often in it for the tradition, and that includes NBC, the network that agreed Wednesday to pay $7.65 billion for the rights to broadcast the games on television and online until 2032. At times the network has been accused of letting its Olympic spirit get in the way of its bottom line. Now it’s betting not only that it can make a good business of the games, but that it can do so while adjusting to the next 18 years worth of shifts in our media consumption habits.
The Olympics have been a beloved money-loser for NBC for decades. The broadcaster lost $223 million at the 2012 London games. Yet it extended its contract the next year, paying $4.4 billion for the rights to the Olympics through 2020. Critics said NBC got fleeced. ESPN, one of the companies that NBC outbid in 2011, put out a statement at the time saying it had made a “disciplined bid,” and adding that “to go any further would not have made good business sense for us.”
NBC has made it clear on repeated occasions that the Olympics deal isn’t just about money. The network has been showing the Olympic games since 1964, and thinks that doing so benefits its other programming. That halo effect is apparently worth a few hundred million dollars. But it has also been steadily edging toward profit on the games themselves. Just before the Sochi games this February, NBC said it expected the games to be profitable. It probably made it after making $1.1 billion in Olympic-related revenue. The key to capitalizing further is probably for NBC to spread coverage over more cable networks and Internet-connected devices.
Now NBC is paying an average of $1.275 billion for each of the next six Olympic games, as opposed to $880 million for the deal it signed in 2012, an increase of about 40 percent. (In fact, the company pays more than that for the summer games, and less for the winter games.) This isn’t an outlandish rate of inflation in the world of sports media rights. When the network renewed its agreement to show NFL games in 2011 it agreed to an increase of 74 percent, $1.05 billion a year.
NBC is flying blind in some ways. It doesn’t know where future games will be or what time zones they’ll take place in. More fundamentally, any deal this long is inherently risky because it’s not clear how people will even be watching sports by then. People will probably still be watching the Olympics, but probably not just on televisions, a venue where NBC is very comfortable selling advertising. The deal is a leap of faith that the network can figure out how to replace any revenue it loses from a shift away from television with online video advertising. Print media was hit hard when it was surprised by this dynamic. Television’s day of reckoning almost certainly lies between now and the end of the deal NBC just signed.
The network is already encouraging people to watch online. It says that there was an eightfold increase in the number of cross-platform views at the Sochi Olympics, versus the last Winter Olympics in Vancouver in 2010. Having customized productions for television and online audiences gives NBC more content to offer to advertisers. Like all Internet video operations, NBC is still trying to figure out the advertising business online–as anyone who watched the same Coca-Cola ad over and over this February knows.
