NBC does that to protect you from any wardrobe malfunctions or other things that might happen during that ceremony that you should not see. Also, many of the athletes are legally kids, so showing them up close would be catering to pedophiles. Showing too many people of a certain ethnicity is considered just as racist as creating the impression that all of them are equally represented in sports (or the world), and showing too few Americans would be considered un-American. Any hint of religious symbolism has been carefully removed, so as not to infuriate the legions of bored housewives who have their mouse cursor positioned over the "Complain!" button on the FCC website while they enjoy the show.
NBC had a special task force work out the exact timing for that event over the course of over a year. They decided that showing the flag and country name would be acceptable, and get them into less legal trouble than showing people (that is until the Extended PATRIOT Act (EXPATRIOT) will make showing foreign flags illegal next year). The shots containing people were painstakingly scripted to avoid as many lawsuits and FCC penalties as possible. Still, they expect at least a dozen lawsuits, especially from the Mothers of Pedophiles Association of America (MPAA) and Jack Thompson.
In the meantime, we hope you enjoy the show!
(The unnerving thing about this is that I don't even think that I'm completely off)
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