where academia meets practice in business education

Were you under the impression that the 2012 Super Bowl matched the New York Giants and the New England Patriots?

On the playing field, of course, it did. But in the business offices of NBC Sports, which owned the broadcast rights, a far more intriguing match-up occupied their attention.

For the first time ever, football fans were able to watch the game on the NBC Sports web site at no charge, using their computers and mobile phones instead of their television sets. Although the traditional television broadcast undoubtedly drew far more fans than the pioneer internet broadcast, the emergence of the new technology represented a memorable moment in the battle between communication platforms.

Made For Television

Professional football’s embrace of the internet platform is an ironic one, considering that the sport itself owes its popularity to the emergence of television. During the radio era, baseball was indisputably America’s pastime; the game’s leisurely pace and limited movements were easily described by its voice-only announcers. But once television became the primary platform for mass communication, football’s rapid-fire activities and open field plays could be visually transmitted to viewers.

Nevertheless, games that are suitable for viewing on wide screen, high definition television sets are far less impressive when watched on small laptop computers and mobile phones. So why did NBC Sports stream the Super Bowl over the internet, when they could have restricted their broadcast to its more visually appropriate (and more universally available) television network?

One reason, perhaps, was an intention to prevent illegal video streaming sites from pirating the television broadcast signal and selling webcast services to international fans who do not have access to America’s television air waves. By simply offering free access to a legitimate webcast that could only otherwise be obtained from illegal vendors, NBC may have been attempting to drive those vendors out of business.

Another reason, perhaps, involved the recent protest of internet piracy legislation. Google, Wikipedia, WordPress, and other global internet firms pulled their sites off-line for a day (or posted protest messages on their home pages) to protest legislative anti-piracy proposals that were supported by traditional Hollywood producers and broadcasters. The protests were so successful that Congress decided to drop the legislation; perhaps NBC streamed the Super Bowl to try to mend fences with the online community.

Marginal Analysis

Even if these two reasons made strategic sense to NBC, though, the network undoubtedly performed a marginal analysis before making the decision to stream the Super Bowl live on its web site. Such an analysis would have clearly marked the football broadcast decision as a “slam dunk” (to pardon the mixed sports metaphor) choice.

What is marginal analysis? It’s an evaluation method that takes an incremental, dynamic approach to assessing the holistic net benefits of a decision. Instead of simply evaluating the direct benefits and costs of a potential strategy (which describes the fundamental approach of many traditional methods, such as Net Present Valuation), an executive who relies on marginal analysis will then proceed to consider how the strategy would incrementally impact the competitive positions of the entire organization.

Imagine that you’re managing a large corporation that must apply large corporate overhead charges to even the tiniest of projects. You’d likely assign “negative Net Present Value” scores to all small initiatives that offer very limited immediate benefits, and would thus likely reject them.

But if you then proceed to apply marginal analysis, you might decide that certain initiatives (although “money losers” in the short term) might help the organization take important steps on strategically attractive paths. You might, upon reflection, approve them.

Thinking Incrementally

So let’s think incrementally about NBC’s situation. How did its free online webcast actually impact the viewing audience? And on a marginal basis, how did it affect NBC’s revenues and costs?

Very few American fans who enjoying watching football on wide-screen television sets would ever decide to turn off their sets and watch on laptop computers and cell phones instead. The game of football, after all, is ideally suited for the television medium. Thus, NBC likely experienced little or no marginal cannibalization of the television audience by the webcast.

However, many American fans undoubtedly continued watching their television sets and then simultaneously turned to their internet devices as well, to click on different camera angles or instant replays. In other words, NBC’s webcast likely converted many “single screen” viewers into “double screen” viewers, enabling the increasingly popular practice of watching television and web-surfing the internet simultaneously.

This additional traffic on the NBC web site by American fans incrementally increased revenues by exposing viewers to web advertisements. Furthermore, given the insignificant costs of online video streaming, it did not significantly increase NBC’s costs. Thus, NBC’s webcast decision was undoubtedly profitable for the firm, a choice that was clearly justified from a marginal perspective.

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