The $4.38 billion reason it’s so hard for U.S. cord-cutters to watch the Olympics online

The 2014 Sochi Winter Olympics start tonight. But if you're among the 9 percent of U.S. households who have broadband but don't subscribe to paid television, it will be nearly impossible to (legally) watch the games online this year.

That's because while NBC is streaming all of the events live online, full access to the livestream will only be available to paying cable subscribers. And thanks to a $4.38 billion exclusive deal NBC struck with the International Olympics Committee (IOC) in 2011 for the privilege of broadcasting the Olympic games in the U.S. through 2020, cord-cutters don't have a lot of options.

(International Olympic Committee)
Olympic Marketing Revenues (International Olympic Committee)

Since the games started being broadcast, television contracts have become an important source of revenue for the IOC — with broadcast deals now bringing in nearly half of Olympic revenues.  And the actual broadcasts have changed substantially: The first "televised" version of the games was in the 1936 Berlin games, and that only included them being beamed by closed circuit to specified halls. Similarly, there was a televised broadcast of the 1948 games at Wembley but it was limited to certain receivers within range of the stadium. But the first significant financial payouts for exclusive U.S. coverage came in 1960, when CBS paid $394,000 for the privilege of showing the games.

For IOC, exclusive deals are an obvious economic winner: A monopoly license will likely demand a higher price than they could garner from selling competing non-exclusive licenses. In the last bid for the rights for the U.S. broadcast, NBC, Fox and ESPN all competed for the honor — and the ratings — of televising the Olympic spectacle represents.

In the end, IOC went with NBC, which agreed to pay $775 million for this year's winter games in Sochi, $1.23 billion for the 2016 summer games in Rio de Janeiro, $963 million for the 2018 winter games, and $1.45 billion for the 2020 summer games. That's a far cry from CBS's bargain 1960 prices, so it's understandable that NBC wants to try to get the most out of its investment.

This is especially important because despite the ratings they bring in, broadcasting the Olympics doesn't guarantee a net profit. NBC reportedly lost  $223 million on its coverage of the 2010 Vancouver Winter Olympics — despite pulling in respectable ratings. And even the record-breaking viewership numbers for the 2012 summer games in London only broke even.

But it looks like NBC will turn a profit this year: External estimates are saying that ad sales for Sochi have already topped $1 billion. However, most of that is for television, with less than 10 percent attributed to digital ad sales. And that creates a disincentive for NBC to promote and prioritize their online offerings: The money is in television, not online. And the harder they make it for viewers to tune in online, the more viewers might be driven to TV — including over-the-air broadcast, which is free to anyone with a digital antenna.

Cord-cutters who aren't satisfied by that option will be able to view a few snippets of the Sochi games online via a temporary pass for "unverified viewers" (read: non-cable or satellite subscribers) that will allow 30 minutes of viewing on the first visit and five minutes on subsequent days. And some might try to go the vaguely illegal route of bumming a cable login from a friend or relative or using a VPN to pretend they're in the U.K. and latch on to the BBC's online coverage.

Andrea Peterson covers technology policy for The Washington Post, with an emphasis on cybersecurity, consumer privacy, transparency, surveillance and open government.
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Andrea Peterson | February 6