Liberty Media has revealed that Formula One’s television audience has reversed by 5% this year driven by its decision to move the auto racing series onto Pay TV in Italy, its second-largest market.
“Television viewing on race day year-on-year is down 5%, however that is largely due to our move from free to Pay TV in Italy,” says F1’s chief executive Chase Carey. Over the past decade, the total number of F1’s viewers has crashed by 41.3% to 352.3 million and although this trend began long before Liberty got the keys to F1 it hasn’t put the brakes on it.
Liberty bought F1 for $4.6 billion in January last year and listed it on the Nasdaq with the ticker FWONK. Soon afterwards it stressed that it would put fans in pole position. Liberty’s presentations referred to the gains fans would get from the “new ownership focused on investing in growth of sport” so it seemed logical that it would give the red light to further Pay TV broadcasting contracts. Far from it.
As we revealed, before Liberty even got the green light to buy F1, its chief executive Greg Maffei had already identified “an opportunity to grow that broadcast stream. Much of it comes from moving potentially free-to-air to competitive pay services.” It has lived up to that promise.
In January this year Liberty signed an exclusive contract in Italy with Pay TV broadcaster Sky Italia which previously shared coverage with its free-to-air rival RAI. As part of the deal Sky agreed to broadcast 4 of the 21 races on one of subscription-free channels though this didn’t stop the total audience in the country being badly dented.
Pay TV broadcasters tend to have smaller audiences than those which don’t charge to watch. However they can often afford to outbid their free-to-air rivals as they are flush with subscription fees and need to use them to buy content which tempts new customers.
Testimony to this, a report in January from investment bank Morgan Stanley said that Sky Italia is paying F1 $125 million annually which is 53% more than last year. The ten teams benefit from this as their prize money comes to 68% of F1’s underlying profits. However, the lower TV audience makes it harder for teams to command high-octane sponsorship rates as they are are usually proportionate to the number of viewers.
Although the total audience is down by 5%, Carey says that “excluding Italy our television viewership is up 1% year on year and our Saturday viewership for qualifying is up even more. We are especially pleased with our performance in our two key growth markets, the US and China where viewing figures are showing uplifts of 50% and 265% respectively.” It is turbocharged growth though it is understood that this is because both markets started from a small base.
According to F1’s 2016 Global Media Report, there were just 9.1 million viewers in China and 13.1 million in the United States where audiences surged by 13% last year. At the other end of the spectrum, the report shows that there were 77.5 million viewers in Brazil making it F1’s single biggest market. It was followed by Italy with an audience of 32 million which accelerated by 16.7% last year before the crash when it switched to Sky.
It is a taste of things to come in Britain where live free-to-air coverage on Channel 4 will come to an end next year when Sky becomes the exclusive broadcaster there too in a deal estimated to be worth $150 million annually. Another threat to F1’s TV audience comes from within Liberty itself.
Earlier this year it launched F1 TV, an online streaming service which directly competes with traditional TV networks. It is known as an Over The Top (OTT) product as it cuts out broadcasters by streaming races directly to viewers.
F1 TV didn’t get off to a flying start as it was beset with so many bugs that it forced F1 to issue refunds to customers. Carey admits that “this year ended up being almost probably a beta project...Like a lot of players who have gone into it, we had more technical bugs than you’d like. I think we probably were not surprised. We hoped they wouldn’t be there but they were.”
The official launch of the service will now take place next year and Carey says “I think 2019 will be the first time we bring it to market as a commercial proposition to market and sell it.” There is a lot on the line.
Not only did Liberty have to fund the development of F1 TV but as a result of this it could jeopardise one of its key revenue streams.
Together, fees from TV networks are F1’s second biggest source of revenue and comprised 33.7% of the $1.8 billion that it made last year. F1 TV competes with them though their contracts prevent it from being launched in some markets like Britain, where Sky and Channel 4 stream the broadcast to viewers themselves. However, Liberty has insisted on allowing F1 TV to go ahead in other markets and, controversially, Carey says he hopes broadcasters will support it.
“In some of the deals we did for 2019 we are sort of partnering with [broadcasters] to market and promote the Over The Top platform. In a way we’re working with them as opposed to against them because actually I think it is compatible. This is a product targeted at your hardcore customers who will pay more for a richer experience than the basic linear one.” It remains to be seen whether this will work in practice, especially as Liberty has already paid the price for the service in the US.
As we recently revealed in American motoring magazine Autoweek, NBC Sports offered Liberty $40 million for a seven-year contract to broadcast F1 provided that it didn’t launch F1 TV in the US. Liberty declined and ended up doing a deal with ESPN which isn’t paying a fee according to the Morgan Stanley report. It could be quite a gamble.
Morgan Stanley forecast that by the end of this year just 104,000 people will have signed up to F1 TV with only 10,000 of them in the US. At an annual cost of $100 that would drive just $1 million of revenue.
The longer-term outlook is rosier with Morgan Stanley predicting 1.9 million subscribers worldwide by 2027 including 227,000 in the US. It is a bold projection given that it comes to around half of the audience who currently watch each race on TV in the US.
Neither the impact of the botched launch nor the appetite for the service are clear as F1 hasn’t released any subscriber numbers. Likewise, ratings agencies don’t tend to disclose how many viewers watched shows on different types of devices. Until now.
In September, for the first time in its 37-year history, the Broadcasters’ Audience Research Board (BARB) in Britain released a break down of audiences for television shows by the type of device they were watched on. It immediately raced into a storm.
BARB’s TV audience data is so highly-regarded that it is referred to as the ‘gold standard’ and is used by channels to sell advertising spots. Its first foray into measuring streaming traffic fell far short of that mark. The measurement system was so experimental that it was riddled with errors and the accompanying notes gave no indication of the reason for it.
Crucially, the data showed that no one used a smartphone to watch either the Channel 4 or Sky coverage of the Singapore Grand Prix – one of the first races which was analysed using BARB’s new system. There were no caveats or notes saying that the zeroes in the BARB table meant that data was missing. To further muddy the waters, the mobile device audience for some of the other F1 broadcasts came to under 200 viewers so the zeroes seemed plausible.
It fuelled criticism from viewers who had indeed streamed the Sky and Channel 4 race on their phones. It was a rare and embarrassing error from BARB which said in a statement that its “multiple-screen viewing figures are the output of a complex new process...We began to report multiple-screen viewing last week, and we are in the process of identifying any problems or gaps in the new data files...The issues that resulted in the missing smartphone data for the Singapore Grand Prix on Sky Sports F1 and Channel 4 were newly-identified and have now been resolved.”
BARB swiftly added a note on the dashboard of the search page which stated that zeroes may mean that the data is missing. It joined an existing caveat stating that PC and laptop data could not be obtained for Sky. Two months on it is ticking over nicely.
BARB began to add the PC and laptop viewing data for Sky last month and the smartphone totals are fully up to date. The only omission is data for Sky’s Now TV online service which is subscription free and allows viewers to watch on a pay-as-you-go basis. The BARB website now gives perhaps the most complete picture of the popularity of streaming F1 in a major market and it is eye-opening.
The graph below shows the number of TV, tablet and smartphone viewers of every race on Sky since BARB began reporting this data. It covers broadcasts on the dedicated Sky Sports F1 channel and simulcasts on Sky Sports Main Event.
Channel 4 cannot be shown on the table above as it is not comparable. Whilst Sky shows all of the races live, Channel 4’s tally only comes to ten and the most recent one was last month’s US Grand Prix. Conveniently, this was also the first race which shows PC and laptop data for Sky so the viewing on all types of devices can be combined in the table below to give a true picture of the appetite for streaming.
The table shows that TV is still in pole position by a long way and mobile devices barely get to the starting grid. Only 3% of the audience streamed the race despite the fact that the Channel 4 service is free and Sky customers can watch online at no extra cost.
The data is only for one market though it is one of the most significant for F1 as its headquarters is in Britain and seven of the ten teams are based there. If only 3% of its F1 fans watch on a streaming service then Liberty could have an uphill struggle elsewhere. Time will tell.
