Will NBC's Olympic investment pay off?May 25, 2012: 5:00 AM ET
The Peacock stands to lose money on the big games, but small victories will help ease the pain.
By Daniel Roberts, reporter
FORTUNE -- Last June NBC spent a reported $4.38 billion to secure Olympic broadcast rights through 2020. That's a hefty windfall for the IOC, which gets nearly half its revenue from fees broadcasters are willing to pay (see chart above). Of NBC's big expenditure, $775 million will go toward the Winter Games in Sochi, Russia, and $1.2 billion to Rio de Janeiro in 2016. But the Peacock Network has learned the hard way that broadcasting the Olympics isn't a sure bet: It lost $223 million on the Vancouver Games in 2010, mostly because of recession-crimped advertising money. Still, the network loves the time slot wins, and the chance to promote its fall shows makes it worth the potential loss.
But as the dollars associated with the Games go up, so too is there more hype, more eyeballs, and more money for the network, it hopes. And the Peacock is no dummy: even though NBC lost on Vancouver, it's learning that viewers now tune in (on TV as well as Web and mobile, where NBC has exclusive rights) not to catch a certain sport, but to see an individual star athlete. Just look at the Beijing ratings: The only night even close to the Opening Ceremony's 34.9 million viewers was a Michael Phelps night. Sure, they could have been coming for the women's team gymnastics, but how to explain the 32.2 million that tuned in just for the Smash Relay? Phelps fans. Shaun White gives a similar example: His men's halfpipe bid was the only night of high ratings for Vancouver, apart from the opener.
Of course, TV has focused on telling intimate stories about individual Olympians for years -- Adam Freifeld of NBC Universal says, "The up-close and personal stories were borne from Roone Arledge at ABC, and Dick Ebersol expanded on the model here" -- but globally popular figures like Phelps have brought it to an extreme. It's people like Phelps, track star Usain Bolt, or U.S. volleyball duo Misty May-Treanor and Kerri Walsh, who bring the audience -- and the money, too. This summer, expect to see more of those "day in the life" clips about inspirational heartthrobs like Ryan Lochte or gymnast Shawn Johnson, and then, yes, even more of them at Rio de Janeiro, where a new ratings-happy head will have to grow into Phelps' place -- the fan-favorite is retiring after London.
For more on the London Summer Games, click on the links below
The (big) bucks behind the 2012 Olympics
Wall Street gets behind the games
Henry Kissinger: Scholar, statesman, Olympic fan
Will NBC's investment pay off?
Rich Sport: U.S. Olympic swimmers float on cash
Poor Sport: When Olympic athletes have to moonlight
London locks down for the Olympics
BMW's ultimate Olympic machine
13 steps to keeping the London Olympics safe
London's extreme Olympic makeover
A shorter version of this story originally appeared in the June 11, 2012 issue of Fortune.