HDTV Almanac - TV Rights for Next Olympics: $2 Billion

[alfredpoor]

According to a report last week in Television Broadcast, the International Olympic Committee (IOC) expects to get more than $2 billion for the U.S. television broadcast rights for the 2014 Winter Olympics in Sochi, Russia, and the 2016 Summer Olympics in Rio de Janeiro, Brazil. NBC paid nearly $0.9 billion for the 2009 Summer Olympics [...]

[url=http://www.hdtvmagazine.com/columns/2010/01/hdtv_almanac_tv_rights_for_next_olympics_2_billion.php]Read Column[/url]

[videograbber]

> Someone’s got to pay these billions of dollars a year if we want to see... <

Or not.

The basic flaw in your premise is that somehow these events are actually worth 2 billion dollars. Everything else flows from that one fallacy. And it's a proven fallacy by the fact that NBC couldn't even recoup their costs... much less make any profit from it. Which is what anyone in their right minds would do.

In fact, even though I enjoy watching the Olympics (at least some of the events), I can certainly live without them (as can most other sane folks), and will do so if things continue to go this way. What is the IOC going to do if everyone simply says, "Thanks, we'll pass". Are THEY going to broadcast the events? What would they do if they threw an event, and no one came?

The only way they can get away with this foolishness is because there are other people foolish enough to pay. Kind of like people who paid $400k for homes worth $200k, because they convinced themselves that they'd continue to appreciate in value. It's just stupid.

When people try and tell me that prices HAVE to go up astronomically, I'm obligated to remind them that they do NOT.

- Tim

[stevekaden]

As much as I like to watch the Olympics- especially for me the Winter- the thought that I am going to be beaten senseless with $2b ++ worth of commercials, and with DVRs having the screens overrun with ads, well I think I will have to pass. At least the olympics is more than the same old balls and pucks doing nothing more than an endless back and forth, but ultimately the preservation of my mind comes first. The first deoderant jock sweat commercial will have me running. And the rest are nearly that awful as well.

[alfredpoor]

Videograbber and Steve, you certainly may be correct that the rights to televise the Olympics aren't worth $2 billion, but that's a bit beside the point. I used this as an example because the numbers are attention-getting (or mind-numbing, depending on your point of view).

The broader point is this: it costs money to get the rights to content, and additional money to produce that content and make it available. I get it that you don't watch much of the Olympics. What do you watch? Maybe it's just the evening news. Okay, it costs something to have reporters in different parts of the world to cover stories, and they have to be skilled and knowledgeable, or else you have all the news outlets reading the same report from a single wire service. Or maybe you have a couple favorite scripted shows: writers, producers, actors, support staff, etc. Or maybe you just watch movies, but similar costs apply. And for all of these, there's also a risk-cost; nobody guarantees that you'll make a profit, so you've got to make enough on your successes to cover your failures. (It's no different than the drug companies or the oil industry.)

I don't expect that you'd pay William Shatner and friends to come and re-enact Star Trek episodes in your living room, but even though the costs of broadcast content are distributed over millions of viewers, there are costs just the same. As we move into a new world of Internet distribution and on-demand viewing, the big challenge will be to figure out who will pay those costs and how, whether it's the Olympics and the NFL, or your local evening news show.

[stevekaden]

I love(d) to watch Olympics. And even some of the never ending Back and Forth sports.

But you brought up the scale of this. I love a number of Shows on Pay TV (HBO-Showtime) and some on commerical TV (that I will pay for when the number of DVRs=the collapse of ad based TV). I will pay my bill as long as I can and be happy to have the art.

But the shows I watch are not, even as a combined group, those with ~$2.5billion of overhead. The problem here is the cost of the rights.

IMHO, The Olympics has stayed centralized, gone utterly out of control in spectacle (and costs) and will do so as long as there are buyers to pay the bill. And I have no complaints there.

But- my patience is for advertising is pretty much shot. When the commercials are greater than the show....it's not fun anymore. I will assume eventually so many people will tire of it, they will turn away. And then the house of cards will collapse.

We are in a steady march to Idiocrasy (see the movie if you have not), except it will not take 500 years to get there, but only a decade or two. At least in LA...and with corporations now given free reign to spend on political advertiseing - soon nationwide.

Pay TV and tall bamboo walls around my house - to block the billboards - is the only way out I can see.

I have to add, I have seen some very nice summarization stories on olympics and special focus within that, and they were great. That in Pay TV format maybe the path.

[BobDiaz]

the International Olympic Committee (IOC) expects to get more than $2 billion for the U.S. television broadcast rights for the 2014 Winter Olympics in Sochi, Russia, and the 2016 Summer Olympics in Rio de Janeiro, Brazil.

They may be asking for that, but good luck getting it. Like any business, the networks need to turn a profit, if the the cost exceeds their potential profits, the answer is going to be, "NO!!!"

I'll bet that in the end, they'll get a lot less for the rights...



Bob Diaz

[akirby]

But that's just it - it doesn't cost $2B to televise the olympics - that's just the "right" to broadcast it. The cost for the right to televise an event is based on what the event organizers believe it is worth to the broadcaster. In this case - how much they can get away with charging for commercial time. And that depends entirely on how many people are watching and whether they can find companies willing to pay that much. Notice the cost for super bowl ads last year was a lot lower than previous years.

The men's and women's final 4 basketball games cost the same to produce and broadcast but I bet the commercial costs are dramatically higher for the men due to higher television ratings.

The NHL found out how dangerous this is when they negotiated a high $$$ TV contract which increased team revenue dramatically which then led to higher salaries for the players (which is fine with me - they're the ones producing the entertainment) and coaches. But that contract didn't pan out for the broadcaster and the next contract was significantly smaller. The huge revenue stream was now gone but the players' contracts were not, and it's really hard to lower salaries once they're up that high. I'm sure the teams had to raise ticket prices.

It's dangerous to place so much value on things with no inherent value or value that can change drastically overnight. What if NBC agrees to the $2B and expects to be able to recoup that on advertising - and the next day the IOC does something terrible and viewers decide to boycott the olympics and the advertisers pull out as a result?

[videograbber]

> The broader point is this: it costs money to get the rights to content, and additional money to produce that content and make it available. <

Ah, OK Alfred. I take your point. That's a horse of a different color. TANSTAAFL applies.

We're talking about the migration away from the "free" broadcast TV model, supported by advertising revenue, because those revenues are decreasing. Partly due to viewers having an expanded range of choices, offered by cable and satellite with huge channel counts (filled with stuff that many people have no interest in watching), with enough that they do that it negatively impacts OTA broadcasts. And partly due to ad skipping by viewers with DVRs, which has led broadcasters to overlay their crap advertising on top of the actual content, so that it's inescapable, thus decreasing its value.

How did we get to this point? IMO, it's largely due to greed, and I'll explain why I feel that way. In the "olden days" of broadcast TV, there was plenty of good stuff to watch, and plenty of advertising dollars flowing in to support it. Those ad dollars came from what I refer to as the "ad tax". In those times, a 1-hour show actually ran 53 minutes, with 7 minutes for advertising. The ads were short enough in duration that they weren't too annoying, gave you time for bathroom breaks, and you didn't need a reminder when the show came back on what the heck you were watching (as you do now). So, 7 minutes of ads bought you 53 minutes of content. 7/53 = 13% ad tax.

Of course, they couldn't be content with that, and as the years went on, they added more and more ads to the mix, and decreased the programming content correspondingly. (This erosion took place slowly enough that there was no outcry protesting it.) Partly this was due to increased production costs, and partly because actors nowadays have a god-given right to be paid like royalty (in some cases being paid $1M per episode, which has 20 minutes of content... I kid you not!). But mostly because like any business enterprise in the US of A, the status quo is never good enough. I.e., if your profits were a billion dollars last year, making a billion in profits again next year = failure. The key word, as always, is MORE. So they kept trimming back the program content, while adding more commercial advertisements, to increase their profits.

Now obviously, this wasn't much appreciated by the viewing public. As soon as technology offered them options, they grabbed them. People constantly point to the DVR as a "commercial-skipping device", when in fact, people were already skipping the ads long before that, with VCRs. They even developed VCR technology that would auto-detect and skip ads without the viewer hitting FastForward and Play manually. And since they had increased the ads in a 1-hour program to as much as 20 minutes, leaving a mere 40 minutes of content, the ad tax had bloated to a mind-boggling 50%. That's a pretty huge increase over the 13% we started with, and anyone who thinks that foisting this on the viewing public wouldn't have an effect to match the cause was just fooling themselves. So DVRs and commercial-skip were simply defense mechanisms, that evolved to cope with the BS on the broadcast side.

The same thing happened on the cable side. Why did people flock to the cable channels? Does anybody remember far enough back that cable channels were commercial free? That's because the viewers had to pay for them directly (in a package, through the cableco of course). But that didn't last long either, and the execs decided that what was good enough for broadcast was good enough for them, and adding adverts would boost their bottom line. So they did. Now many cable channels are the worst offenders... not only in ad density, but also obnoxiousness of overlaid advertising.

The other factor is quality of the programming, or lack thereof. At one time, content was developed by independent studios, and sold to the networks. But in their greed, the networks didn't like the fact that when a show was a hit, THEY weren't the ones reaping all the profits. So they either bought up or brought in-house new program development. The problem there is the downside... not every show is a hit, and making a mistake can be expensive. So, as in all they do, risk minimization comes into play. Cut back on shows that are expensive to produce, and instead shift to cheap "crap" programming. Then complain when the viewers tune out.

What they don't seem to get, but isn't that hard to see, is that THEY are driving viewers away. People will put up with abuse for a while, but eventually they'll get sick enough to do something about it. They'll either tune to another channel, switch over to DVDs (many watch epsiodic TV shows on DVD specifically to avoid all the garbage), or just tune out completely and go read a book or take a walk. The bottom line is that the top brass is a bunch of lame-brain knuckleheads, and you don't have to read too many comments from these execs (about their "strategies" for increasing ad content up to the breaking-point that a significant %ages of viewers won't accept, then backing off a notch) to recognize that fact. They simply have no respect for the viewing public that is their customer base. When you start holding your customers in contempt, and think of them as something to be manipulated, that bodes badly for everyone. Plus, when you lose any sense of responsibility for providing information services to those viewers, unless it can pay for itself, things like news reporting will suffer, or be eliminated.

I've commented before on what I think a viable mechanism for OnDemand viewing of broadcast TV would be, running parallel with OTA and delivered over the net, along with a reasonable pricing structure. So I won't go into that again here. But that would provide the $$$ that's needed to support content development, compensate those who contribute to it, and still make a profit for the distributors. Of course, even if such a system were to be put into place, there are bean-counters whose first question will be, "what monetization opportunities are we missing, and how much money are we leaving on the table (the worst crime of all)", who will look for new ways to destroy that balance again.

- Tim

[alfredpoor]

Tim, I can't argue with your analysis. The only point I'd add, however, is that in those golden days of television, the entire audience was divided among three networks. It's kind of like the era of Chevy, Ford, and Chrysler. Then came UHF and cable, and now the audience is parcelled out over dozens of channels, making it more difficult for advertisers to reach their markets. That expansion of outlets only makes your "ad tax" situation worse, as fewer viewers are expected to "pay" more.

I don't pretend to know how this will turn out. I think that micro-focused advertising may be the answer; it's only "junk mail" if you're not interested in the content. But that has not been delivered yet, and I don't know if anyone will pull it off. All I know is that it will look a lot different than the video entertainment landscape that we're dealing with today.

Alfred