Fans of the Olympics are often in it for the tradition, and that includes NBC, the network that agreed on Wednesday to pay $7.65 billion for the rights to broadcast the games on television and online until 2032. The network has been accused at times 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 of shifts in media consumption habits.
The Olympics have been a beloved moneyloser for NBC for decades. The broadcaster, owned by owned by Comcast (CMCSA), lost $223 million on the 2012 Summer Games in London. Yet it extended its contract the next year, paying $4.4 billion for the broadcast rights to the Olympics through 2020. Critics said NBC got fleeced. ESPN, one of the rivals outbid by NBC in 2011, released a statement at the time saying it had made a “disciplined bid,” adding that “to go any further would not have made good business sense for us.”
NBC has made clear on repeated occasions that the Olympics broadcast rights aren’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. NBC has also been steadily edging toward profitability on the games. Just before the Sochi Olympics in February, it said it expected the games to be profitable. They probably were, after the company made $1.1 billion in Olympics-related revenue. The key to capitalizing further may be for NBC to spread coverage over more cable networks and Internet-connected devices.
Now the network is paying an average $1.275 billion for each of the next six Olympic Games, about 40 percent higher than the $880 million per game under the contract it signed in 2012. (It 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 company renewed its agreement to show National Football League games in 2011, it agreed to an increase of 74 percent, to $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. Any long-term contract like this is inherently risky, because it’s not clear how people will be watching sports by then. They may still be watching the Olympics, but not only on television, a venue where NBC is comfortable selling advertising. The contract 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 revenue from online video advertising. Print media was hit hard when it was surprised by a similar dynamic. Television’s day of reckoning almost certainly lies between now and the end of the contract NBC just signed.
The network is encouraging people to watch online. It says there was an eightfold increase in the number of cross-platform views at the Sochi Olympics, vs. the Winter Olympics in Vancouver in 2010. Customized productions for TV and online audiences give NBC more content to offer advertisers. Like all Internet video operations, the network is trying to figure out the advertising business online—as anyone who watched the same Coca-Cola (KO) ad over and over this February knows.