The Gaelic Athletic Association (GAA) is the organisation that organises the national sports of Ireland, namely hurling and gaelic football, which are very popular on the emerald isle and also amid Irish communities around the globe. Obviously it is not easy to sell the TV rights to these sports in places like China, because the numbers of people interested is unlikely to attract advertisers to pay back the costs of the purchase of the rights, but the GAA has decided that the best way to handle the situation is to cut out the middle men and stream both sports on the Internet, charging fans around the world $19 per game, or $150 for a season pass.
This is a great deal cheaper than buying a Formula 1 subscription, although Sky TV in the UK is now offering a Day Pass for UK viewers at $17. With the BBC now broadcasting nine races live, that means that fans can see live coverage of F1 at every event for a total of $170, which is a lot cheaper than the full Sky package. In the longer term, however, there is nothing to stop the Formula One group following the GAA lead and taking out the middle man and charging fans direct, all over the world.
The global live TV audience for each F1 race these days is down to an average of around 25 million people. This generates around $600 million per season in revenues for the Formula One group, which then splits the money with the teams.
The sport has been playing with full pay-per-view in recent years, but the high costs charged by people like Sky mean that the fan base is not happy and refuses to pay, getting its coverage instead by either pirating signals from other broadcasters or not watching F1 any longer. The viewing figures for Sky in the UK are pretty poor, although they get a massive amount of access, which is hard to fathom when one considers that Brazil’s TV Globo has a far bigger audience than anyone else and it will be many, many years (if ever) before pay-per-view attracts those kinds of numbers.
This is presumably the reason that Sky has introduced its $17 deal. It is not clear whether this is helping, but in the meantime F1 sponsors are looking more closely at the eyeballs they are getting and wondering if they are doing the right thing. Sky is making money despite the poor figures, and despite paying $72 million a year from the rights it has. That deal runs until 2018 and the company’s goal is to increase the numbers and the revenues before the next negotiation, but at the same time the drop in the viewer numbers is making it harder for the teams to find sponsors and thus the teams are arguing, quite rightly, that they should be paid more of the overall revenues.
In order to get the same level of revenue from an audience being charged $17 a race, it would require only around 10 percent of the current global viewers. Lower that price to, say, $5 a race and it would require only 25 percent of the audience to double the revenues of today. That sounds plausible. The trouble with pay-per-view is that it does not really advertise the product – because everything is happening behind a pay-wall and so people are loathe to sign up to something that they might end up feeling was a waste of money.
If the money men in the sport poured some back into the game and used the Internet and TV to advertise the sport (a foreign concept for them) then they might even aspire to 50 percent of the current audience and four times the revenues. Spending $100 million a year to gain billions sounds like a reasonable investment to me.
Some say that in time all sport will be available only on pay-per-view and there is a certain logic to that. The people involved are putting on a show and one does not expect to go to the cinema or the theatre without paying to watch, does one? Other more traditional folk argue that sport should not be a business, but the fact is that it is. The other question is whether or not the future generations will care about sports if they have alternative things to do that they find more exciting. This is why all sports and F1 in particular need to wake up to the Internet and start working to get the next generation excited about racing cars. There is a natural affinity for kids and cars but these days the interest seems to wane at seven and eight as they start disappearing off to virtual worlds that offer unreal excitement.
In the interim, the question of TV coverage is finding the right balance between free-to-air and pay-per-view, hoping to keep the team sponsors happy and yet at the same time, cutting down the number of viewers. Ironically, as the pay-per-view numbers increase so does the logic in favour of cutting out the middle men in the TV, satellite and cable companies – and deal directly with one’s own audience.
If F1 attracted the same audience as today at $5 a race, the revenues would be $2.3 billion a year. At $10 a race it would be $4.6 billion. These are wildly impressive figures, but the chances are that the audience will reduce rather than increase given the competition for attention. In order to achieve the best results F1 needs to get into the richer markets (such as the US), where people are used to pay-per-view. If the pay-per-view TV audience increases dramatically the advertisers will want to be seen on those feeds – so that sponsorship available to F1 will come back – but there is a lot of work to do before that starts to happen.