FEBRUARY 12, 2002

The future revenues of Formula 1

One problem which is currently not being addressed by F1 is the fact that TV revenues are going to drop in the years ahead.

ONE problem which is currently not being addressed by F1 is the fact that TV revenues are going to drop in the years ahead. The television world is in a constant state of flux at the moment but there are trends which have developed. The average home in Britain these days has over 100 TV channels available (in America the average is 70 channels). In addition to this people are watching TV less and spending more of their time on the 5m websites which exist. At the same time the advertising-funded model of TV is under threat because viewing habits are changing. The younger generations have so much choice that they may not have the same attachment to sports as their parents. They are also much more prone to zapping from channel to channel and already there are problems with advertisers as viewing figures drop off instantly when advertising is shown. This means that the focus is now switching towards signage and virtual advertising which is imbedded in the picture being broadcast. This means that there is pressure for the sport to move towards a more "entertainment" format.

Sport is having to compete for viewers like never before and the only way to fight this trend and keep the viewers is to take control of TV production to ensure that the programs broadcast are of a consistent high quality. Formula 1 has done this for its pay-per-view service but the free-over-air programming remains relatively weak. Without the viewing figures the TV companies cannot attract advertising and so cannot pay the rights fees being demanded. Pay-per-view TV has been a major disaster for most of the companies involved although it is beginning to work when they offer big packages at reasonable rates. Trying to charge high rates for specific sports is not viable.

The best way to move forward appears to be to improve the product using new technology. Formula 1 has embarked on this path but only with the pay-per-view feed produced by the Formula One group. Rallying has found that advanced computer games can be a great communication tool for the sport and are now attracting viewers who would otherwise have had no interest in rallying.

There is general resistance to the Internet as no-one seems to have yet worked out how to make money. Subscription Internet sites are not successful to be able to replace TV incomes but at the same time the television and the Internet are moving towards some from of technical "merger" in the future which will be a massive challenge for the rights holders.

Maintaining TV revenues and harnessing the Internet are the issues of the moment.