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Rio Olympics highlight TV's messy transition to digital

It was never going to be easy, but did it really have to be this hard? 

The Olympics have come to a close with NBC licking its wounds. The network has spent the past two weeks tirelessly defending itself from complaints about its broadcasts, its limited digital strategy and its falling ratings. 

Criticizing NBC's coverage is as much an Olympic tradition as the unquenchable flame and the unquenchable sex drive of Olympians. This time around, however, there's something that makes the critiques all the scarier for NBC. 

By now, you're probably well aware that ratings for the Olympics declined for the first time since 2000. In the near term, NBC will be ok. Even with the ratings decline, NBC has maintained that the Rio games are projected to be the most profitable Olympics yet, also claiming it to be (no joke here) "THE MOST SUCCESSFUL MEDIA EVENT IN HISTORY."

It's the longer-term trends that are worrisome. Looking back, the Rio Olympics could become the prime example of the messy transition to digital faced by TV companies.

"I suspect that right now everyone at NBC is staring daggers at every millennial they can see, especially if they're on a smartphone right now," said Jim O'Neill, principal analyst for Ooyala. 

As well NBC should. The network lost around 1/4 of its millennial audience for the Rio Olympics compared to the London games from four years ago, according to Bloomberg Intelligence. That's a group of people that NBC will need to cater to for decades to come, as well as a demographic that is extremely valuable to advertisers in the near term.

The good news is that NBC saw a dramatic increase in digital consumption, streaming around 2.7 billion minutes of coverage. Unfortunately, NBC didn't do anything to offer that option to people without cable authentications — a group that would conceivably been willing to pay for access.

"NBC could easily have put that together and said, 'we're going to have a general olympics package to subscribe to online for 35 bucks,'" O'Neill said. "CBS is making great money ... off of CBS All Access and Showtime."

The risk/reward proposition to offering those kinds of packages is difficult to parse for companies like NBC. Offering that kind of package would mean fresh revenue from a new audience, but could reduce the need for people to have cable subscriptions. This fear of "cannibalization" has caused most major broadcasters to make a very slow and deliberate entry into digital alternatives. 

The shift has been slow, but it is becoming more steady. As O'Neill mentioned, CBS has been among the bravest in this regard, launching a subscription standalone around its main channel as well as one for Showtime. NBC has dipped its toe in the pool with Seeso, a comedy-focused digital subscription service. 

They'll have to do it at some point thought. NBC isn't the only company feeling the brunt of the public's shifting consumption. Australia's Seven West Media warned that tepid Olympics interest was going to hit the company's profits. 

NBC might have shown some willingness to take a risk with its comedy properties, but the Olympics are still off limits. Jan Dawson, head of Jackdaw Research, noted that NBC's distribution "was very much about doing much the same thing that was done two years ago, four years ago."

"There wasn't nearly enough experimentation," he said.

Even with some sort of digital subscription offering, NBC faces a difficult situation. Those millennials on their phones aren't surfing over to They're on Facebook and Snapchat. 

NBC did strike a deal with Snapchat to feature some highlights and behind-the-scenes content. That's the kind of thing NBC will have to do more of, which isn't a particularly appealing alternative to its existing TV business.

"The only place where viewing is up at all is social media stuff that neither Comcast nor NBC own," Dawson said. "It really feels like the only part of the consumption that is growing is third-party channels that they can't monetize and generate less money in general."

Social media didn't exactly sneak up on anyone. The International Olympic Committee even went as far as explicitly banning the use of gifs from the games. That crackdown didn't do much, particularly in an era where athletes can produce their own content.

Facebook had its celebrity partners (who are being paid) providing original video, which featured some of the biggest stars of the games. Michael Phelps even announced his retirement just before his last team race. That video has almost 4 million views. Facebook logged 1.5 billion interactions from 277 million people in total throughout the games.

On Twitter, the retweeted moment was gymnast Simon Biles meeting Zac Efron. Like the Phelps episode, NBC had nothing to do with it and couldn't control it. 

What those numbers tell us is that NBC just doesn't own the Olympics anymore, despite having shelled out $7.65 billion for the TV and digital rights through 2032.

What will TV look like in 2032? Different.

"They're going to have to rethink where the money comes from, how they're going to generate it," Dawson said.

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