CBS scores on the net – and in the boardroom

Back in 1999, when CBS was negotiating a sprawling $6bn deal with the National Collegiate Athletic Association that encompassed television, radio, marketing and licensing rights for dozens of sporting events, little thought was given to the internet.

Yet as Sean McManus, head of the US media group’s sports and news divisions, sat down at the bargaining table, he got some unexpected advice from his boss, Les Moonves.

“Les said: make sure we get [the digital rights],” Mr McManus recalled, betting that there might one day be some value to broadcasting the event on the internet.

Seven years into that 11-year contract, the prediction seems to have come true. Two months ago, CBS’s SportsLine.com webcast of the annual NCAA basketball tournament – better known as March Madness – drew more than 5m fans, who downloaded more than 15m video streams.

The webcast showed commercial promise, too. CBS sold out the advertising space on its site to sponsors such as Dell and Courtyard Marriott. Although the roughly $4m in revenues was a fraction of the TV sales, CBS executives predict the figure will double next year.

“That business is on the rise,” Mr Moonves, CBS chief executive, told Wall Street analysts last week as the company announced its first-quarter results.

While media analysts have hailed March Madness as a watershed moment in the internet’s evolution as a broadcast medium, it also serves as an example of how well suited sports content is to the digital age and how it is propelling media companies’ online efforts. With the web, broadcasters can offer a buffet of games and events that traditional TV simply cannot accommodate. The internet’s ability to organise the data that sports fans love also makes it appealing as a complement to traditional TV broadcasts.

“The immediacy of a sporting event and the thirst that viewers have for more information about it is pretty much unparalleled,” Mr McManus says, arguing that sports are more compelling on the web than news or entertainment programming. “If you augment the coverage of a linear broadcast with the internet, it opens up all kinds of possibilities.”

This was demonstrated weeks before March Madness with NBC’s coverage of the Winter Olympics. While the games drew disappointing TV ratings be­cause of the time difference, they brought record traffic to the network’s website. The internet is now expected to be a cornerstone of NBC’s coverage of the 2008 summer games in Beijing.

Meanwhile, at Walt Disney sport has led the way in the company’s expansion into the wireless sector. This year, Disney launched a mobile phone based on ESPN, the 24-hour sports network. The premise is that sports fans are so passionate that they will pay a premium to the network to have scores, updates and highlights beamed to their handsets.

“Sports and stocks are the two leading-edge data sets that have been at the forefront of the web,” says Larry Kramer, founder of the popular MarketWatch financial news website, who was recruited to CBS last year to head its digital division.

Mr Kramer began dabbling in sports information before the dotcom era. In the early 1990s, he founded a business called Data Sports that used a radio signal to beam scores and live betting odds on to a handheld device. The subscription service cost $99 a month, and drew a narrow audience of gamblers and Las Vegas casinos, which used the information to check the latest spreads.

As the internet took root, it offered a way to disseminate sports news and information to a mass audience. More recently, the proliferation of broadband connections has made it possible not only to publish scores and statistics, but to stream video to thousands of customers simultaneously. “All that technology really came together this year,” Mr McManus says.

As a showcase, March Madness may have been the ideal event. The tournament is geographically dispersed, with multiple games played around the country at any given time. Inevitably, that means that there are legions of disappointed fans whose favourite teams were not chosen for the TV broadcast in their market.

As if to add to the misery of the average sports fan, many of the games are played during the middle of the working day, when they are meant to be sitting behind a desk – not in a bar. As such, the CBS webcast was the only way for many fans to follow their team.

While some companies have complained about lost productivity due to March Madness, Mr Kramer is unrepentant, arguing that CBS may have prevented droves of them from taking sick days during the tournament. “I think employers should thank us,” he says. “We probably kept people at their desks.”

Initially, there were concerns at the network that the webcast might cannibalise the TV audience. But CBS executives ultimately reasoned that anyone who could watch their chosen game on TV would do so because of the superior picture. This seems to have been borne out by the TV ratings, which rose 6 per cent from the previous year.

A more vexing question was whether CBS should charge a subscription fee for the webcast or offer the games free and rely on advertising. The issue is dogging managers throughout the media industry.

Fortunately, CBS executives had a precedent to study. A year earlier, they sold the tournament’s internet rights to a smaller media group, College Sports TV (which CBS later acquired). CSTV charged viewers a $19.95 subscription fee for its webcast and the offer generated a mere $25,000 in subscriptions.

“One of the lessons we’ve learnt about the internet is that people do not want to pay for something they’ve ever seen for free,” Mr McManus concludes.

Since the tournament, CBS has moved on to other events. In April, it supplemented its coverage of The Masters golf tournament with streaming video that allowed viewers to watch their favourite players as they passed the so-called Amen Corner – the famed 11th, 12th and 13th holes. More than 3.4m streams were downloaded.

That sort of success has created its own problems. Foremost, leagues are not likely to part with their digital rights as easily or inexpensively as the NCAA did seven years ago. The NFL, for example, has discussed digital rights with a range of possible bidders – from CBS to AOL and Apple. Many expect that the league will ultimately retain them itself.

Even if they do not broadcast sporting events on the internet, however, media companies are still finding ways to profit from them. Already, CBS and ESPN draw millions of NFL fans to their websites to track statistics and highlights from other games even as they are watching the action on TV.

Mr Kramer witnessed this phenomenon while visiting his son at the University of Michigan. “I walked into his apartment and there were three guys watching the game on the big-screen TV and they all had their laptops open, checking their fantasy league and their instant messenger.”

That could have important implications for advertisers. In the future, CBS hopes to offer companies a way to launch integrated campaigns that take advantage of the best parts of the different media. A carmaker, for example, might use TV’s superior image quality to introduce viewers to a shiny new sports car. The web component might feature links that customers could click on to learn more about the product or even contact a local dealer.

At the moment, CBS is improving the integration of its web and TV offerings. Some possibilities are community sites built around particular university teams and on-demand footage from historic games.

“We’re so early in this, nobody knows how it’s going to go,” Mr Kramer says. But March Madness has certainly awakened media executives to the possibilities.