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Tough sledding ahead for NBC in Games

The network forecasts red ink of $250 million.

February 11, 2010|By Meg James

For television giant NBC Universal, the Winter Olympics in Vancouver, Canada, is shaping up to be a bumpy downhill ride.

The network, weighed down by overpaying for rights fees, expects to lose at least $250 million on its coverage of the Games that begin Friday night. Sluggish ad sales -- at least initially -- helped dig NBC deeper into the financial hole. On top of that, there are few star U.S. athletes to whip up excitement. And on Wednesday, the top U.S. female skier, Lindsey Vonn, revealed that she bruised her shin during practice last week and might not be able to compete.

Then there's the weather. British Columbia's unseasonably warm temperatures have melted snow and increased the chances of competition-halting fog on Cypress Mountain. Organizers have been trucking in powder from hundreds of miles away.

Olympics on NBC: An article in Business on Thursday about NBC's broadcast of the Winter Olympics said NBC Universal's bid for the television rights to the 2010 and 2012 Olympics Games was $900 million more than the next-highest bidder, Rupert Murdoch's Fox network. NBC Universal's bid of $2 billion was actually $700 million more than Fox's $1.3-billion offer. Separately, NBC's parent company, General Electric Co., provided an additional $200 million to become an Olympics sponsor for the Vancouver Games and the 2012 Games in London. —

The Olympics are the "ultimate reality show, and no one really knows how it is going to turn out," said Alan Wurtzel, NBC Universal's president of research. The drama might even make for a good reality series were not so much at stake, including what effect it might have on future rights bidding and staging of the Games.

But NBC Universal, its parent, General Electric Co., and the International Olympic Committee weren't planning on this kind of a nail-biter. Network executives had expected to grab ratings gold in large measure because of the Games' Pacific time zone locale, enabling more than half the country to watch the events live."There are not any major breakout stories or known stars," said Greg Kahn, an executive vice president at advertising firm Optimedia.

NBC is planning 835 hours of coverage over 17 days on the NBC broadcast network and cable channels USA, MSNBC, CNBC and Universal HD. Advertisers hope that millions of viewers will catch Olympic fever, with some companies shelling out $500,000 to $600,000 for prime-time commercials on the network.

Sponsor expectations are not entirely unfounded. Live sports events on TV have been drawing huge audiences in recent years. Sunday's Super Bowl on CBS set a record with 106.5 million viewers.

But the Olympics will be facing strong competition from "American Idol," "Lost," "House" and "Big Bang Theory," shows that have been attracting large audiences for rivals Fox, ABC and CBS.

In fact, four years ago in head-to-head competition, "American Idol" drew more viewers than the Winter Olympics in Torino, Italy, said Paul Swangard, managing director of the Warsaw Sports Marketing Center at the University of Oregon. "This time around, that's going to be key to the ongoing strength of the Olympics. Is this something that the prime-time network audience really cares about?"

The stakes are enormous. The International Olympic Committee in the last two years has lost several major sponsors, including Johnson & Johnson, Eastman Kodak Co. and laptop maker Lenovo, a blow for the organization that already heavily relies upon TV money from the U.S.

More than half the IOC's international broadcasting income -- the lion's share of its revenue -- comes from the U.S. TV rights holder. And the IOC within the next year will auction the broadcast rights for the 2014 and 2016 Games. Disappointing ratings for the Vancouver Games would make it difficult for the IOC to again fetch top dollar.

General Electric got itself in its Olympic-size financial fix in 2003 when it bid $2 billion for the television rights for Vancouver and the 2012 Summer Olympics in London. GE's bid was $900 million more than the next closest bidder, Rupert Murdoch's Fox network. "They bid a lot higher for these games than they needed to," said Dominic Caristi, a professor at Ball State University's Digital Policy Institute.

NBC executives acknowledge their estimates for 2010 revenue were faulty. They expected continued advertising growth, not a recession that would hammer the economy and flatten ad budgets.

"Nothing goes up forever," said Andrew Zimbalist, an economist at Smith College.

NBC will pay $820 million for the TV rights to the Vancouver Games, about $150 million more than its current estimate for advertising revenue. In two years, GE will write another whopping check, this one for $1.1 billion, to broadcast the events in London. GE separately agreed to spend $200 million to become a global Olympic sponsor.

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