Why is Comcast spending big on Olympics?

NBC wants to be one of the main players in national sports programming, and broadcasting the games offers great visibility.

By Trefis Mar 27, 2013 6:30PM
logoComcast (CMCSA) recently stated  it will not make much profit from the broadcast of 2016 Summer Olympics. Despite this, the company's media unit, NBCUniversal, spent close to $4.8 billion additionally to acquire the rights for 2016 and 2020 Summer Olympics. The natural question is, would it have been better if NBCUniversal had invested this capital somewhere else? Let's take a brief look at the individual segments within NBCUniversal to better understand this.

We estimate that NBCUniversal accounts for close to 25% of Comcast's value, making it a $30 billion business -- again, per our estimates. A big portion of this value comes from cable networks, which accounted for about 80% of NBCUniversal's operating cash flow in 2012. The operating cash flow from NBC's broadcast division were a little over 10% of those from its cable networks division.

There seems to be a huge gap, much bigger than that for other media companies such as Disney (DIS) and News Corp (NWS). Therefore, there seems to be an opportunity to improve NBC broadcasting's profits. However, is acquiring the Olympics rights the best way to do so? In fact it did the opposite in 2012, when NBC incurred a net loss on its broadcast of Summer Olympics. The low profits in 2016 might further create pressure on margins, and predicting what will happen in 2020 is next to impossible.

Comcast stock break-upThe idea is something else, and it appears that NBC is using Olympics as a platform to achieve slightly different goals.

It allows the company to have a much higher visibility among distribution partners and viewers. Such visibility could help the company get more sports rights and eventually have enough compelling content to compete with ESPN. There is no doubt there is plenty of money in the sports programming business, but currently no other network is good enough to challenge the market leader ESPN.

We estimate that ESPN is a near $40 billion business for Disney. Eventually, NBC wants to be one of the main players in national sports programming. In addition, Olympics broadcasts and higher visibility can give the company a platform to successfully launch new programming. One such example is the launch of “The Voice” last year.

Our price estimate for Comcast stand sat $46, implying a premium of about 15% to the market price.

Mar 28, 2013 9:52AM

NBC's coverage in London sucked big time! Not showing certain events or holding them over till later that night when you could get on the internet and find out the results ahead of time and read about it but in many instances was blocked out for live streaming? Forcing you to watch their channel, total joke. NBC tv network is horrible and can't seem to get anything right. Should be spending that money fixing their programming lineup. In the big picture I think its a load of crap only one network gets to broadcast the Olympics. All networks should be allowed to broadcast and we should get real time streaming feeds of the events as they happen. Then the network can rebroadcast later on for those that missed it or couldn't watch it live on the internet. The only catch to this I would say, since the money helps, is let the networks bid on what events they want to broadcast that way the more popular events will still get them to pay the big bucks but with even more channels we could get a wider range of coverage. Again its two weeks every two years (summer/winter) so I don't see it as a big deal. Just tired of seeing an event that is supposed to be about the world coming together being carved up and controlled by corporate entities whose main concern is profit. Same for food and beverage, let whoever be the main sponsor but at least allow areas for local vendors as well who can also pay for booths to serve food, ect. Let everyone in on it.

I think its time

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