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On the Wisdom of Betting $4.3 Billion Against Cord-Cutting

· August 7, 2012

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Although the Twitter-based beatdown of NBC for its perceived botching of Olympic coverage became a sporting event unto itself, NBC still picked up high ratings for the Games this past week, and a survey released by Pew yesterday indicates that a large majority of viewers reported they were satisfied with the coverage.  This could be viewed as vindication of NBC’s plans to bet heavily on the Olympics, which were allegedly a source of friction during the Comcast merger talks — enough to prompt speculation that NBC might be unseated as the reigning exclusive licensee for U.S. transmission of the IOC.  Ultimately, however, NBC still bid a stunning $4.38 billion to secure all exclusive U.S. rights from the Olympic TV Rights and New Media Commission through 2020.

The entrance of Comcast into the picture heralded the possibility of departing from the current and decidedly 20th-century approach to Olympics coverage: taped-delayed, diced and repackaged hours of sometimes obscure sporting events into more primetime-worthy dramas featuring heroes, rivalries, tears, injuries, and impossible challenges to overcome.  Comcast’s broad cable portfolio suggested a different approach, with real-time delivery of content on channels like NBC Sports (formerly “Versus”).

It was not to be.  While the IOC sought and NBC promised more live coverage, a casual review of the Twitter hashtag #NBCFail demonstrates that the tape-delayed, repackaging strategy aimed at creating a narrow window of high-value advertising time has prevailed in London.  Thus, the decision to cut a tribute to victims of the 2005 London bombing in favor of a taped interview of U.S. swimmer Michael Phelps, and to delay coverage of Usain Bolt’s record-breaking 100m dash were not simply ignorance or bad taste but an effort to sustain a narrative suitable to bring viewers back to subsequent evenings of primetime repackaging.

Although NBC is live-streaming Olympic events on its website, it does so only to viewers who have a cable account, ensuring continued subscriptions for Comcast and large license fees from its competitor cable services.  And yet thus far, the delayed and repackaged prime-time coverage has done well enough to suggest that many viewers still accept a “curated” experience.  (It is left to the reader to determine whether the high marks (a) demonstrate viewers’ desire for commentary in which anchors happily profess ignorance about the identity of World Wide Web inventor Sir Tim Berners-Lee or (b) merely reflects that non-techies have nowhere else to go.)

Whatever the cause of the high ratings, NBC needs viewer acceptance of its tape-delayed curation to hold out for eight more years, given its long-term deal with the IOC.  As content viewing habits change, however, more viewers are likely to develop habits closer to the disgruntled Twitterverse, seeking contemporaneous, unadulterated access to the sporting event, and finding analysis, opinion, context, and supplemental information from social media and other Internet sources that they trust.  An initial wave of tech-savvy viewers have already given up on “the last great buggy-whip Olympics” and sought out unadulterated streams from abroad through proxy-servers; this is quite possibly a preview of what is to come.

Reflecting on these challenges, media professor and pundit Jeff Jarvis recently outlined exactly the dilemma of the disrupted:

The problem for NBC as for other media is that it is trying to preserve old business models in a new reality. To experiment with alternatives when billions are at stake is risky…. The bottom-line lesson for all media is that business models built on imprisonment, on making us do what you want us to do because you give us no choice, is no strategy for the future. And there’s only so long you can hold off the future.

Regardless of whether NBC moves toward television live-streaming, it will soon face a more existential threat than irate Twitterers: a generation of cable-canceling cord-cutters for whom the notion of “subscription cable” is as outdated as buggy whips, and who will likely use the Comcast’s own broadband connection to access the games on 21st-century terms.  Unfortunately for NBC, it has bet a ten-digit sum on holding off the 21st century until 2020.

Competition

Some, if not all of society’s most useful innovations are the byproduct of competition. In fact, although it may sound counterintuitive, innovation often flourishes when an incumbent is threatened by a new entrant because the threat of losing users to the competition drives product improvement. The Internet and the products and companies it has enabled are no exception; companies need to constantly stay on their toes, as the next startup is ready to knock them down with a better product.

Intellectual Property

The Internet enables the free exchange of ideas and content that, in turn, promote creativity, commerce, and innovation. However, a balanced approach to copyright, trademarks, and patents is critical to this creative and entrepreneurial spirit the Internet has fostered. Consequently, it is our belief that the intellectual property system should encourage innovation, while not impeding new business models and open-source developments.