Comcast’s Pound-Foolish Olympic Bet

by Jonathan Berr | July 31, 2012 8:00 am

Will Comcast (NASDAQ:CMCSA[1]) ever make a profit on the Olympics?

The Philadelphia-based parent company of NBC Universal has already admitted that it will lose money on the 2012 games. Many on Wall Street expect Comcast to also lose money on the $4.38 billion deal it has signed to broadcast the next four Olympics (two winter and two summer games) despite the company’s claims to the contrary. Stifel Nicolaus analyst Christopher King told Bloomberg News[2] he’s especially skeptical given “NBC Universal’s history of losing money on the Olympics.”

That’s an understatement.

Indeed, as Kurt Badenhausen noted in Forbes[3], NBC executives aren’t sure that the prime-time average rating in London will surpass the level achieved by the 2008 games in Beijing because of the growth of social media. Ratings so far, of course, have been solid, but that can change.

Lackluster Olympics ratings could be a big problem since most TV advertising is sold in advance based of guaranteed audience levels. If the network fails to meet these targets, NBC may have to provide advertisers free commercial time as compensation. That’s all moot if a compelling storyline or story lines emerge (remember gymnast Mary Lou Retton, or the hockey team’s “Miracle on Ice”?), but even if that happens, the long-term benefits for NBC Universal may prove to be elusive.

Ratings on the NBC TV network have been in a free fall for the past decade or so despite heavy Olympics promotion. During the 2011-2012 season,[4] NBC averaged about 6.9 million during prime time, ranking fourth. That’s a 55% drop from 15.4 million people who watched NBC during its heyday in the late 1990s. NBC’s Today Show[5] and NBC Nightly News[6] are losing their dominance in the ratings. Viewership for Meet the Press[7] recently hit a 20-year low.

It’s also hard to imagine that Comcast’s cable channels, some of which are showing the Olympics, will see any lasting bump in viewership from the London games. MSNBC[8] and CNBC are both[9] seeing double-digit declines in ratings. Perhaps the Olympics could help Comcast’s Universal Studios,[10] which ranks third in the box office this year, promote upcoming feature releases such as The Bourne Legacy, but that benefit may be hard to measure.

Though Comcast CEO Brian Roberts is proudly waving the Olympic flag, he’s also keeping a close eye on the bottom line because the benefits from the games are temporary. Wall Street expects the Philadelphia-based company to boost revenue by 10.6% to $61.78 billion in 2012, helped by the Olympics as well by spending on the presidential election. Revenue growth will slow to 2.4% in 2013.

Shares of Comcast are up more than 36% this year. Analysts have an average 52-week price target of $34.75, about 8% above where the stock trades today. The good news from the Olympics and the election are already factored into the stock price.

The Olympics raise a bigger question about the economics of sports programming. Pressure is mounting on media companies to justify ever-increasing fees for broadcasting and carriage fees. Consumers who may not know a baseball bat from the uneven parallel bars are starting to fume about paying for channels they have no interest in watching. The answer, of course, is a la carte pricing[11], but don’t expect that to happen anytime soon.

Jonathan Berr does not own shares of any stocks mentioned here. Follow him on Twitter @jdberr.

  1. CMCSA:
  2. Bloomberg News:
  3. Kurt Badenhausen noted in Forbes:
  4. During the 2011-2012 season,:
  5. NBC’s Today Show:
  6. NBC Nightly News:
  7. Meet the Press:
  8. MSNBC:
  9. CNBC are both:
  10. Universal Studios,:
  11. a la carte pricing:

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