NEW YORK (AdAge.com) -- CBS is turning live, ad-supported sports on the web into a real business, selling out its inventory for March Madness on Demand and bringing in about $37 million in online ad sales, up 20% from the year before.
More importantly, it sold as many ads for live web coverage as it does on TV, taking CBS a little closer to the holy grail: earning the same revenue per viewer regardless of platform -- TV, online and, perhaps soon, mobile.
CBS no longer breaks out digital revenue as a percentage of its business, but it has for the past several years reported revenue numbers for March Madness on Demand, which tells a story of solid growth for the online arm of its TV franchise. MMOD has increased its revenue from $4 million in 2006, its first year as a free service, to $32 million last year. That's still a pittance compared to the $619 million Kantar Media estimated that CBS earned in TV revenue last year, but the key for CBS is that it's found revenue above and beyond what it earns on TV. That revenue gap is more than justified when you consider 7.5 million people watched the NCAA tournament online last year compared with 130 million on TV. But unlike TV, digital revenues are steadily growing.
At an investor conference last week, CEO Leslie Moonves called the online broadcast "a great new source of revenue" for CBS.
This year CBS added Capital One as a sponsor in addition to AT&T and Coke. It also took another step in allowing viewers to access the streams pretty much wherever they happen to be on the web, including Yahoo Sports, Facebook, and even -- gasp -- ESPN.
It's the latest in a multi-year experiment for CBS, which spent $6 billion in 1999 for the rights to NCAA basketball. The NCAA has an option to extend the deal until 2013 after this year's tournament is over. That deal was notable for its size, and also notable in that it did not address internet rights to the games, which has allowed CBS to try several business models to make the TV-web equation work.
CBS started putting live games online in 2003, but charged $15 to users for access. In 2006, CBS dropped the pay wall but required registration and blacked out games in certain cities. In 2008, CBS dropped the registration requirement and the blackouts and expanded online coverage from the first 56 games to all 64, including the final.
CBS is charging for the games on mobile, and is charging $9.99 for its March Madness iPhone app, up from $4.99 last year, currently the No. 2 paid sports app in Apple's app store, behind Major League Baseball's $14.99 app.
"The original intention was to put the early rounds on the web when fans are not around a TV and give them a chance to watch at work," said Jason Kint, senior VP-general manager for CBSSports.com. It limited the free online streaming to work hours and non-televised matchups. Over time, CBS realized TV didn't need the protection: Viewers tended to watch on TV when they were able, during prime-time and on the weekends, and on the web during work hours.
On most online TV services, such as Hulu and even CBS's Audience Network, viewers get fewer ads online than on TV. Not so with March Madness where CBS sells the ads in virtually the same way as TV, except video advertisers get display that appears when their ad is running.
"This is extraordinarily similar to selling TV and that's a good thing," said Rich Calacci, senior VP-advertising sales for CBSSports.com.
CBS's approach contrasts with NBC's strategy around the last summer and winter Olympic Games, which were structured to protect prime-time ratings, even if that meant fans couldn't watch certain events live, such as men's downhill skiing.
What's so different about the NCAA tournament and, say, the Olympics? Both are big-budget, multi-week events, but NBC puts a good bit of the Games on cable, and cable operators don't like when content they pay for goes online for free. Which raises another question: As CBS gains higher fees from cable operators for the broadcast network, will it continue to offer programming online for free?