If there is anything that could be considered a guaranteed revenue generator in the world of TV content it is live sports broadcasting. It retains its pricing power, while its screen of choice is the television set in the home. The latter is important because it commands higher advertising revenue from marketers.
This is why broadcasters like Comcast's (NASDAQ:CMCSA) NBC don't mind bidding huge amounts of money to cover the Olympics. The event not only generates significant revenue, it keeps the brand name of the company in front of the world for several weeks, including pre- and post-Olympic coverage.
Why live sports are different
The reason live sports are so in-demand is because of the fact that they are live. Live sports are not one of those pieces of TV content that someone will want to watch after the fact unless there is simply no other way of seeing the event. So on-demand access has little value for sporting events, which makes these events highly lucrative for those media companies that provide the live content.
This is a major reason why ESPN is so powerful and compelling for Disney, as the company has plenty of room to boost prices because of the willingness of sports fans to pay extra for the content.
So even in slow times Disney has as close to a guarantee of a predictable stream of income as there can be in the industry. This is a big moat for Disney because of its day-to-day dominance in that particular segment of the market. Fox, of course, is trying to change that going forward.
In its latest quarter the media networks unit of Disney, which includes ESPN, reported that operating income rose by 20%, with a lot of that coming from the increase in advertising and affiliate revenue from ESPN.
NBC and the Olympics
One major thing I wanted to point out concerning NBC and the Olympics is the fact that approximately 90% of those who watch the Olympics will do so on their television sets. While people generally don't mind watching TV content on smaller devices, they prefer to watch live sports on a bigger screen.
With that in mind, it is estimated that 90% of those who watch the Olympics see the event on a bigger TV in the home, and also that about 90% of the revenue connected to Olympic coverage comes from TV advertising on the big screen.
This means that even though NBC is expected to stream about 1,000 hours of Olympic live events online, only about 10% of the revenue from the event will come from digital viewers. NBC will broadcast 539 hours of the Olympics on television.
Fox Sports 1
While Fox Sports 1 will take some time to get off of the ground, it has a nice start with college football, NASCAR, UFC, and UEFA Champions league available at this time. Major League Baseball games are scheduled to debut in 2014, and coverage of the U.S. Open and FIFA will begin in 2015.
One strength of Fox in the past, which appears to remain with the company, is that it doesn't mind taking a significant amount of time in order to build out a brand. It did this with the original Fox brand, it is doing this with Fox Business, and it will no doubt continue to do this with Fox Sports 1.
Nonetheless, it is attempting to offer compelling content in the short term, such as the upcoming Daytona 500, where it will offer over 80 hours of
coverage. There can be no doubt that this is a showcase event for the new sports network, so the company is going all out to succeed with it.
Again, the stakes are extremely high in live sports, and in my opinion the companies that win in this important market will be in the strongest positions in the TV industry in the years ahead.
Live sports are one of the most important and consistent performers for media companies. Even one-off events like the Olympics can bring in big money, along with the associated prestige.
Even more importantly are those companies that provide consistent, day-to-day coverage on a variety of sports. Advertisers love sports content because viewers don't tend to bypass commercials during these events in the way they do with scripted and reality TV content. This makes live sporting events the most valuable and desired content in the world.
When evaluating media companies, be sure to do your research on their exposure to live sports, as these events will be among the best revenue and earnings generators for these companies.
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Gary Bourgeault has no position in any stocks mentioned. The Motley Fool recommends Walt Disney. The Motley Fool owns shares of Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.