16/02/2013
NEWS STORY
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Two years ago when it was announced that UK F1 coverage would be split between the free-to-air BBC and subscription service Sky from 2012 there was widespread uproar. It was the first deal of this kind in a major market and fans led the tirade of anger because, for the first time, they had to pay to see all races and qualifying sessions live. However, behind the scenes, it also made the teams take stock of the implications. An article in the Guardian by Pitpass' business editor Christian Sylt reveals that the teams still have their eyes on it.
According to F1's industry monitor Formula Money, which is published by Sylt, the teams receive over £580m annually from sponsorship. The blockbuster rates that they charge are driven by exposure to as wide an audience as possible on television. F1's races attract a total of around 3.4m spectators annually but this number is dwarfed by the audience which watches on TV. It came to over half a billion viewers last year which makes F1 the world's most-watched annual sporting event. The only sting in the tail is that the total audience decreased last year and the switch to subscription services was partly to blame.
Sylt reveals that, according to F1's latest annual broadcast report, audiences in the UK fell by 3.8m to 28.6m despite Sky setting up a dedicated F1 channel. It could be a sign of things to come as a deal was signed on Thursday to move F1 to subscription-only coverage in France on the Canal+ channel from this year. It follows the signing of new contracts last year which split F1 coverage between subscription and free-to-air in Italy and the Netherlands. There may be more to come as the prospectus for the £6.4bn flotation of F1, which was put on hold last year, confirmed that the sport's boss Bernie Ecclestone "will explore additional pay television opportunities."
Lotus team principal Eric Boullier says that if the trend becomes global then the teams may need to adjust the sponsorship rates they charge.
"We obviously present TV viewers figures to our sponsors, as the current F1 business model has developed thanks to Bernie's strategy to go free-to-air," says Boullier adding "we do monitor the new strategy to go to pay TV. It may increase the fan profile and 'educated' audience but we may have to review our sponsorship figures if the tendency becomes global."
According to Formula Money, sponsorship comprises 42% of team budgets on average and the lower the viewer numbers, the lower the rates they are able to command. However, it isn't all bad news for the teams. For the first time, this year they will receive 63% of F1's total profits as prize money, meaning that they also benefit from increasing TV rights values. The deal with the BBC and Sky is an Ecclestone masterstroke as it is understood to be worth £64.5m ($100m) annually - a 25% boost on the price of the previous free-to-air-only coverage.
Boullier acknowledges the significance of this boost and since the trend is at an early stage there isn't cause for concern. However, he says that the teams will monitor it and will have to work out how to balance a possible decrease in sponsorship with an increase in prize money. This is no bad thing.
"As other sports who switched to pay TV, their revenues stream grew up as the TV income became more important. If I am not wrong, Premier league doubled its yearly revenues with new contracts last year," says Boullier.
TV rights generated a total of £315.1m ($488.9m) for F1 in 2011, representing 32.1% of its total revenue. Almost three quarters of this comes from just 10 markets, including the UK, Italy, France and Spain, where the broadcast contract is due to expire at the end of this year.
"I think Sky have done a good job and I am happy with it. They never promised me any viewing figure targets," says Ecclestone.
It is hard to see how he could be happy with the performance in China as this market experienced the sharpest decline last year. Viewer numbers in China fell by over a third from 78.5m to only 48.9m due to clashes with other local sports events.
China wasn't the only new market for F1 which lost viewers last year. Audiences fell in Russia by 12.8% ahead of the first Russian Grand Prix next year which will take place at Sochi's £32.2bn ($50bn) Olympic Park. This drop was attributed to the poor form of Russia's only F1 driver, Vitaly Petrov, who failed to score a point for Caterham and has not been signed up this year.
TV audiences even fell in the US despite the return of its home race after a five year hiatus. The United States Grand Prix took place in Texas in November to great acclaim within the industry but viewers of F1 in the US fell by 3% from 10m to 9.7m.
There were also dips in other traditional markets such as Germany where numbers fell by 2.5m to 34.3m as the uncertainty of race results at the start of the season put off viewers looking for victory from Sebastian Vettel.
In Germany the coverage is on both free-to-air broadcaster RTL and Sky Deutschland. The report states that "reach in Germany dipped in 2012 as the season got off to a relatively slow start for the German drivers - where in 2011 Vettel won the first two races of the Championship, in 2012 he had to wait until late September for his second win of the year, at the 2012 Formula 1 Singtel Singapore Grand Prix. In the early part of the championship, these lacklustre results affected live race audiences. As Vettel's title charge got back on track, however, so did RTL's audiences. By the 2012 Formula 1 United States Grand Prix in Austin, average audiences were back above 7.5m live viewers and for the title showdown in Brazil, 11.5m fans tuned into RTL's coverage."
For the first time, the report did not publish a total figure for the global TV audience. Ecclestone says that "a small handful of territories didn't meet expectations in terms of reach, with the Chinese market suffering a decrease which could not be absorbed by a significant number of increases elsewhere."
F1's largest market is Brazil where viewing figures accelerated 8.9% to 85.6m in 2012. There were also strong audiences in Spain and Italy, where respective increases of 11.5% and 15% were fuelled by the strong performance of Fernando Alonso, the Spaniard who drives for Ferrari. If Alonso can snatch the title from Red Bull Racing this year then he may be able to single-handedly turn around F1's reversing viewing figures.
If he didn't already have enough on his shoulders then he certainly does now.