No one likes losing money. But to NBC, the $100 million of red ink it may spill on the Summer Olympics is more like an investment, and a lesson in TV Economics 101.
Just about everyone agrees the $1.3 billion NBC is shelling out for the Summer Olympics won't be recouped in ad revenue. The Summer Games will, however, pay dividends to NBC that won't show up directly on a balance sheet.
Among other things, the network will have a large captive audience — and it will take full advantage of that, rolling out two new sitcoms during the Olympics and using commercial breaks to inundate viewers with promos for its fall prime-time lineup. While the Games are on, it will have valuable exclusive content for its critical and still highly profitable "Today" franchise.
The Games also provide a chance to groom two of NBC's newest personalities: Savannah Guthrie and Ryan Seacrest. Last but not least: The Games help NBC build its sports division, including its newly renamed NBC Sports Network, a little-watched cable channel formerly called Versus that NBCUniversal's owners hope to build into a viable competitor to ESPN.
"NBC's problem has been the lack of viewers coming to the network day in and day out," said Sam Armando, director of strategic intelligence for the Chicago-based advertising company Starcom MediaVest Group Exchange, a part of Starcom MediaVest Group. "And here comes the Olympics, which gives them the opportunity to showcase the network over two weeks."
And what a showcase. NBC expects the London Games to rank among the top-rated television events of all time, with nearly 200 million Americans watching at least part of the telecasts over 17 days.
The network paid $1.18 billion for the television rights and is spending about $100 million more for production costs, staffing and the building of a 70,500-square-foot broadcast facility in Olympic Park.
The Olympics could offer a needed push for a network that has been stymied in fourth place in the ratings for years. New shows have failed to catch on, and key franchises such as "Today" and "The Tonight Show With Jay Leno," which have delivered tens of millions of dollars to NBC's bottom line in recent years, have seen their ratings slide.
Considering that NBC, like every network, is under pressure to compete with on-demand options such as DVRs, Netflix and Hulu, the Olympics' guaranteed viewership is an important advantage.