NBC rolled out its fall prime-time television schedule to advertisers here on Monday, assuring them that all is well at the top-rated network among young viewers, even without perennial revenue powerhouses "Friends" and "Frasier," both of which signed off this month.
But reworking the prime-time lineup is just one key to a successful year. The network's most important programming between now and the fall — the summer Olympic Games in Athens, scheduled for Aug. 13-29 — carries its own uncertainty. (MSNBC is a NBC-Microsoft joint venture.)
Two images over the past two weeks — an unfinished Olympic stadium just now getting its roof and the debris-strewn aftermath of a bombing days before — served as reminders of the possible disruptions that could upset the advertising plans of NBC and its many stations and affiliates.
For the first time, the threat of violence has led the International Olympic Committee to take out an insurance policy if the Games are canceled by war, terrorism or natural disaster. If the Games are called off, the International Olympic Committee will refund NBC's $793 million rights fee. Also, NBC's production costs are insured by a $160 million policy.
But no policy underwrites the $1 billion in advertising revenue that NBC is banking on, or the hundreds of millions of dollars its 230 owned and affiliate stations are counting on for the 17-day broadcast of the Games, money that is a key part of quarterly revenue and profit for the network and stations. Another broadcast-crippling possibility: that the U.S. team, fearing for the safety of its athletes, decides to pull out, a scenario that swimming legend Mark Spitz alluded to in April.
Officials at NBC Universal, the newly formed parent of NBC, are upbeat about the upcoming Games, which include 1,200 hours of programming, saying they expect them to go off without a hitch.
"We don't anticipate or foresee any cancellation of the Games, or boycotts," Randel A. Falco, president of NBC Universal Television Networks Group, said in an interview last week. "That's not to downplay the concerns, because there are many, but we sort of live in this world all the time now. This started back in '92 with Barcelona with the Basque separatists," he said, referring to the potential terror threat to the 1992 Summer Games owing to the political strife between the Spanish government and the Basque nationalist movement.
If the games were to be canceled, the network would "repopulate those 16 days with programming that has revenue associated with it," Falco said, although NBC would not be able to charge advertisers Olympics rates for substitute programming. More than 85 percent of the Olympics ad slots have been sold, NBC said. NBC owns 14 stations and has more than 200 affiliates.
Also, many advertisers at the station level buy Olympics-only advertising, meaning that their commercials must appear during the Olympic broadcasts or not at all. If the Games are cancelled, the network and stations would have to refund advertiser money or do less-profitable "make-goods" elsewhere in the schedule, giving advertisers equivalent-value commercial slots in other shows.
At stake as well is the power of promotion.
The Olympics draw the highest ratings of any summertime shows and precede the fall network television schedule, which will debut early this year, right after the conclusion of the Olympics and before Labor Day. A delay in starting the Games could lead to a television programming and commercial-buying crash, like a speeding car slamming on its brakes at the front of a line of tailgaters, analysts said.
Throughout the broadcast of the Games, NBC will promote its 2004-05 prime-time lineup, not only on NBC, but on sister stations CNBC, MSNBC and USA Network. It is a crucial fall for the NBC network: For the first time in a decade, NBC faces the hard-charging CBS and Fox without its most potent weapon, the top-rated and top-billing comedy, "Friends," and another solid long-term producer, "Frasier."
A disruption in the Games "not only would be a worst-case scenario for the Olympics coverage, but [NBC] is actively employing the telecast to launch the new fall season, which will begin the day after the closing ceremonies," said John Rash, a media buyer for Campbell Mithun advertising and marketing firm. "Beyond whatever human tragedy transpired, it would have a significant business impact on NBC and GE because of what the loss of the Games would mean to the new season."
For NBC Universal parent General Electric Co., which owns 80 percent of the company — Vivendi Universal SA holds the remainder — the impact of losing Olympics advertising would be blunted by GE's size. In 2003, NBC accounted for 5 percent of the company's $134 billion in revenue and 13 percent of GE's profit of more than $15 billion.
But at NBC, the $1 billion it expects to earn in Olympics advertising revenue is about 13 percent of the network's entire anticipated 2004 revenue of $8.3 billion, as projected by GE chairman and chief executive Jeffrey R. Immelt in a December conference call to investors.
Local stations would be hit harder than NBC if the Olympics go awry.
As an example, Hearst-Argyle Television Inc. owns 24 stations, 10 of which are NBC affiliates. Those stations reported $15 million in Olympics advertising during the 2002 Winter Games in Salt Lake City and $18 million from the 2000 Summer Games in Sydney. Analysts expect the chain to make $21 million in ad revenue from the Athens Games.
"The Olympics are a material piece of business for Hearst-Argyle," said Sean Butson, a media analyst at Legg Mason Research. "If you take away the Olympics, you'll get some merchants to fill that [commercial] space, but they certainly won't get Olympics pricing. Hearst-Argyle stock would be affected more than GE's."
Local television stations are so dependent on Olympics and general election advertising (and, to a lesser degree, midterm election ads) that station revenue routinely peaks in even-numbered years and dips in odd-numbered years.
For instance, 2003 revenue at the six television stations owned by The Washington Post Co. dropped 8 percent from 2002, a $32 million dive attributed by the company to the lack of Olympics and election ads in 2003. Two of The Post Co.'s stations are NBC affiliates.
McLean's Gannett Co. — which owns 24 stations, including 11 NBC affiliates — gave the same reason for its 6 percent drop in 2003 broadcast revenue compared with 2002, good for $50 million. During the 2002 Salt Lake City Winter Olympics, Gannett's television stations made between $22 million and $25 million on related advertising. It expects to do better with the upcoming Summer Games, which always are more popular with advertisers.
Among The Post Co.'s stations is WDIV-TV, Detroit's NBC affiliate.
As a thank you for buying commercial time on WDIV, the station has taken some of its big advertisers to past Olympics. But not this year. The NBC affiliate decided as early as last year that Athens may be too dangerous.
"It won't be a comfortable place for clients," said Alan Frank, general manager of WDIV and president of Post-Newsweek Stations Inc.
Indianapolis's Emmis Communications Corp., which has three NBC affiliates among its 16 stations, hopes to make as much as $1.5 million in Olympic advertising this summer. If the Games go wrong, some of that advertising revenue can be moved around to other programs on its NBC stations, but most cannot.
"If something happens to disrupt the Games," said Emmis Television Division President Randy Bongarten, "roughly half to two-thirds of that money would be at risk."
Finally, there is the concern about how the United States and its athletes will be received and perceived. Last week, the United States Olympic Committee instructed U.S. athletes to mute their celebrations, fearing they might stir anti-American sentiment.
"If American athletes and, by extension, the U.S. become objects of derision at the Games, it will be interesting to see how NBC covers that and how the American public reacts," Rash said. He said such conflict may cause a "tune-out factor" that would lower the Games' ratings, hurting broadcasters and advertisers.