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The Tower of Fable

FEATURE BY MAX NOBLE
04/04/2019

Oh the lament! Around the world the cries of anguished engineers as they reel in corridors and writhe in laboratories! Haunted by banshee howls of wild power and chased by phantoms of the spreadsheet, they are a tormented set of souls, doomed to a hellish slaving for the mighty wraiths of accounting.

The Four Horsemen of the Apocalypse only got those steeds because the Fifth horseman was an accountant, who pre-approved the horse purchases and gave them unlimited funds for the exploit, with the full blessing of Accounts and Finance, while rejecting all claims from others for items of use in protection against death, famine, war and, err… conquest or pestilence.

Quake dear reader, and only digest this article from behind the safety of your favourite couch (the one you used to use for Dr Who will do fine) as we are going to be focussed on numbers, and accounting for this article, a fiery land where engineers, and other mortals, should fear for their lives with every step.

Long ago, while living easily into their early 20s, humans had no need of money as all the rocks, berries, water, and sloths one could want were strewn around the land in a "hunter gatherer come and get me" kind of way.

We progressed.

Barter was good for a time.

Then, when a direct swap simply didn't work, or your Tower of Babel, or Hanging Gardens of Babylon needed to address a horde of sub-contractors, suppliers, and independent third parties, well, money, accounts payable, American Express, and Frequent Flyer programs followed in the blink of an accountant's eye.

Which (you were starting to wonder where I was going with this, admit it...) brings us neatly to F1 viewer numbers, Pay-TV, Miss Physics, Budget Caps, and Yurtle Turtle.

Please, stay with me as we build our stack of turtles (note to befuddled readers, if you've not read Yurtle the Turtle by Dr Seuss now might be a good time so to do. It is a story about Yurtle, King of the Turtles who builds a high tower of his turtle subjects to see a bigger kingdom, for he is king of all he can see - with a lovely moral ending. That's enough context to get you through I hope...)

So now let us proceed to build our special F1 fabled Tower of Turtles. At the bottom of our F1 stack we find our aptly named "Fan Base". This is the turtle on which all others must stand. Fan Base Turtle used to be a mighty, broad and muscular turtle on which one could build a globe straddling empire. Indeed King Bernie did just that.

To build on Fan Base Turtle one needs "Advertising Revenue Turtle" stacked neatly on top. Based off global viewing figures Advertising Revenue Turtle depends on Fan Base for credibility. With huge fan numbers comes credibility, which unleashes a torrent of joyful gold, rushing into the vaults in an endless river of success.

Gold, that comes from "Willing Advertiser Turtle" who stands, a little wobbly it must be noted, on the back of Advertising Revenue Turtle. Each turtle in our turtle tower relies wholly on the turtle below to keep him (or her) utterly safe in their position.

"Willing Advertiser", then has "Corporate Drive" wobbling on her shoulders. Next turtle is "F1 Team", then "Circuit Owner", then "FIA", then Liberty, and finally the new King Yurtle on top "Chase Turtle", the new King of all he can see!

My. That's a big stack of wobbling turtles you've got there King Chase. All balanced on the back of Fan Base Turtle. Is it safe? Is it Sound? Will you tumble to the ground?

Of course to assess the stability of Chase's Turtle Tower we will call in the accountants, as engineers find happens to them every day...

The global audience used to be well over 100 million viewers, with Bernie pointing out only the (football) World Cup and (summer) Olympics exceeded F1 for viewing figures, and you only got to host those every four years. A huge draw for free-to-air TV advertising. As a result the Turtle stack was as solid as Mount Everest. Fan Base Turtle was a titan on whom empires could be built to last for a thousand years!

Then digital media and Pay-TV (driven by smart-arse engineers who wanted a lot less hunter gatherer and far more super yacht who had made a pact with the devil and "got" accounting) found new ways to monetise services. It was no longer free-to-air TV to inform the people, with a few ads thrown in, it was a revenue stream with monetised content for a target audience.

This is where the numbers get interesting.

What is a free-to-air (FTA) viewer worth, compared to a pay-per-view (PPV) viewer?

That depends..

Floyd Mayweather got one of the biggest pay days in boxing history by pocketing in excess of $200m for his McGregor fight. All from a modest few million PPV viewers.

Connor for his part got a feeble $30m (poor chap).

Great for two guys who only have to finance a water boy and an endless supply of fresh towels.

If you're trying to run the beast that is modern F1, $200m is not going to run the sport. And keep in mind the Mayweather fight was expensive to watch (depending on your viewing market in the region of $50 to view). Ask current F1 fans to pay a monthly subscription, plus $50 a race and see how well that works.

So, as FTA (free to air) viewing drops, the value of that advertising market falls, so each FTA viewer is worth less... until you reach a crossover point whereby fewer PPV viewers are worth more to your business than a larger FTA viewer base. The big dollar question is; what are those two numbers for a viable PPV F1 universe? And this is where the dark winds of Autumn suddenly start blustering around King Chase's Turtle Tower.

Each country that has gone behind a paywall has seen a massive reduction in viewers. This has multiple impacts; Fewer FTA viewers means that the advertising revenue stream is shrinking; fewer casual viewers means the pool of potential future engaged fans is shrinking; less casual conversation about the sport means reducing general social awareness of, and interest in, the sport; and finally and critically, as FTA viewers depart are you generating enough new high-value PPV fans to exceed the revenue take from your old FTA fan base?

Boxing is some years down this path. It generates huge purses for a few boxers, but public awareness of the sport is nothing compared to the Mike Tyson generation. Boxing is now working on this as it realised it was not generating future fans, as the fan base from the 1980s and 1990s, ah, "moves on".

Only football (soccer) has managed the transition to PPV well because it has a century of building a fan base that can buy a $10 football, go to the park and have a kick about with mates and the family, and relate to the game. Plus, following a football team is handed parent to child and is rather tribal (recalling those heady hunter gatherer days...) so the fan base is literally "baked in" from generation to generation. Football has nothing to fear from PPV, and is milking it accordingly so the star players can get those ten figure salaries the poor lambs need to survive.

Formula One has none of the minute cost to run advantages of boxing, and none of the century old fan base and genetic tribalism baked in that football possesses. It simply has to retain a large high-paying fan base to make the number add up.

In true fearless Pitpass style part two of this article will boldly go where no engineer has gone before, and sneaking a few minutes with the accounting spreadsheet we will run some imaginary numbers to see if we can guess the point at which King Chase tumbles into the mud and reeds as Fan Base Turtle collapses exhausted and the Turtle Tower crashes down around him.

Don't worry, just like King Yurtle, Chase is still King of all he can see. It's just that all he can see is mud.

Learn more about Max and check out his previous features, here

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READERS COMMENTS

 

1. Posted by Bill Hopgood, 23/05/2019 18:24

"Perhaps New Zealand is the grand experiment in where countries are headed?
We are a small population sample, english speaking, a bit out of the way, similar tech to larger countries and most importantly, if something goes wrong with testing a product, no-one outside of NZ really knows or cares.
I do know that big multinationals will test products here on the quiet so F1 could be no different.
We had PPV on SkyNZ before many other countries and no FTA option on the side. Minimum cost got up to over $80 which we'll say is 40 GBP per month. Note that included all sport on SkyNZ and for one season a "pitlane" channel.
Sky dropped F1, F2, F3 this year and now Spark (the old privatised government Telecom) has picked it up with some other sports and is streaming the Sky UK coverage for $20 per month.
Miss Phisics has had a good laugh at that $20 expense too by the way as Spark use F1 and WRC, Hockey and some fights as a test for their streaming of the Rugby World Cup. If I was a RWC fan I'd be a bit worried.
How is the experiment going? Mixed. Aussie GP wasn't quite ready but watchable, Bahrain qualifying went missing, I think Baku things started coming right.
The good is that I can watch on iPhone or Mac any time I'm on my home fibre 100MBS plan that gets about half that on a speedtest to the UK.
The bad is that I don't have a smart telly and the app won't go to Apple TV, so it's F1 on the small screen.
That's the experience for someone into F1.
Those that are not into F1 just know the 30 second sports broadcast on the news, that no-one I know watches.
I had to drop Sky Sport (I don't have time and also an extra $30 isn't in the budget per month) meaning I'm missing Indy, NASCAR, Supercars and most importantly MotoGP which is for me the benchmark for motorsport entertainment these days.
FTA motorsport here is a highlights package a week later on the following Sunday.

This weekend is Spark's highest profile race for us outside of Aussie and Japan (good time zones) so we will see how they go.
"

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2. Posted by betkoi365, 18/04/2019 11:29 (moderated by an Adminstrator, 18/04/2019 11:33)

"This comment was removed by an administrator as it was judged to have broken the site's posting rules and etiquette."

Rating: Neutral (0)

3. Posted by Simon in Adelaide, 18/04/2019 4:22

"Now if the cars were a little less technologically advanced and more like this https://www.speedcafe.com/2018/12/17/video-s5000-onboard-hot-lap-at-winton/ then perhaps the spectacle would have greater appeal."

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4. Posted by BrightonCorgi, 08/04/2019 17:37

"If F1 is not free in the US; it's done. Not many will pay and even less will care about F1. Any sponsors interested in the US market will spend on something else.

I am an F1 fanatic and doubt I would pay to watch races."

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5. Posted by English Tony, 08/04/2019 16:25

"The solution is simple - a basic FTA to get people interested in it & a PPV offering much larger levels of content (follow your chosen driver live etc ) once you've got them hooked

This is clearly what Bernie will be doing once he's bought back F1 at a knock-down price from Liberty Media's grateful creditors

He's probably already lining up the next mug punters to sell it to as well"

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6. Posted by Max Noble, 08/04/2019 12:24

"@Yeyox02 - to save all that typing next time use an old engineering Comms protocol and just type “NAK” which effectively means “Not Acknowledged” - that way we can gift more minutes back into your life. :-). No really, thank me later..."

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7. Posted by Yeyox02, 07/04/2019 15:36

"Yawn - All this wording reflects what exactly the current F1 is: a very boring thing."

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8. Posted by Max Noble, 06/04/2019 7:18

"@cricketpo - good to see you back at the keyboard. Amusing reminder on Al Capone :-)
Two fair points you raise. Agree FTA television has a major audience, and hence advertising reach/income issue that is not limited to F1, and not going away any time soon. What I object to is the splintering of the market so one needs two or three different subscriptions (here in Australia, with different providers, not just differing packages from the same provider) to get full coverage of key sports.

Agree on being ”road relevant” - as you know I believe this is simply cover for the motor-heads within car companies to get the board to sign-off massive racing budgets...

@imejl99 - Agree if King Chase and King Yurtle has focused on the product (or simply on the happiness of Fan Base - via providing a great product) then neither would be messing around with Turtle Towers making one and all grumpy...

@FruityFrog - LOL... Cannot get that image out my head now - thank you :-)

@FQITW - didn’t know that... sigh...

@Spindoctor - glad you could relate to the scene setting :-) You’re right I’ve a trusty slide rule tucked away at the back of the attic that should be pressed back into service for part two :-)

@ everyone else - Some interesting feedback and observations as ever, thank you!

"

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9. Posted by Spindoctor, 05/04/2019 16:27 (moderated by an Adminstrator, 18/04/2019 11:33)

"@crticketpo
I don't totally agree, but love some of your phraseology: "..and get on with what it does best - spending other peoples money." -priceless!

I'm not against PPV per se. My beef is with the Value Proposition.
Here in UK "FTA" isn't actually free. In general we pay 154 p.a. (12 per month) to get umpteen hours of Broadcast, some Sports, original drama, tons of Streamable content etc. Netflix offers equally good value, and in 4k

However it ain't just about the cash. The lack of 'value' in F1 derives mainly from the mediocrity of the whole business, which continues to work as it did in the good old\bad old days when Bernie was cock o' the walk, ably assisted by Maxie.
That was then, this is now, and Now is a much harsher environment in which to flog something as specialist as F1 currently is, and which lacks almost completely in human interest. As I've opined before, F1 could take a leaf out of Dorner's books - no empty Grandstands at MotoGP weekends, gladiatorial competition between riders and the TV is excellent! That's how it's done Chase."

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10. Posted by Spindoctor, 05/04/2019 16:02

"@Ed
I am suitably chastened - bloody, but unbowed...."

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11. Posted by FQITW, 05/04/2019 15:29

"Sadly the malaise of PPV has now spread to Goodwood
where if you want to watch live streaming of the complete Members Meeting this weekend you pay 39 ‘membership’ for the pleasure as you have to be a ‘Fellow’ on the GRRC waiting list to qualify.
They will give you only one ‘free’ race per day over the weekend.

It particularly hurts people who have supported GW over the last 20 years (I have been to about 15 of the Revivals) but am not always able to attend and being able to watch was the next best thing to being there but sadly now it’s not to be.
Increasingly the way of the motorsport world it would seem …
"

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12. Posted by USA1, 05/04/2019 14:28

"If the 3 Stooges think they did anything good for Formula 1, think again the sport has only gone downhill for the last 10 years, if they thinking about charging on PPV to watch a race, that would be the end of F1, on the other hand they might consider a budget cap and leave everything else open so we can have real racing again and perhaps more engine suppliers entering the sport like it used to be, good luck and I will keep watching until I have to pay for it extra!"

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13. Posted by Fruityfrog, 05/04/2019 12:45 (moderated by an Adminstrator, 18/04/2019 11:33)

"Looking at the picture above of Chase and Co. If one were to add a sepia tone and some cowboy clothing, I think that the line up would be for the Hole in the Wall gang. How very appropriate.
I think the comment of "seeing the difference between Sky and C4 over the Silverstone meeting"
is spot on. I for one would be very interested to see how they fare against each other.
Sky couldn't even come up with their own theme tune. "

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14. Posted by imejl99, 05/04/2019 11:07

"What is FTA TV? Put antenna on the rooftop? Most countries have some sort of TV tax. In most countries prevailing TV signal goes thru cable by provider. We pay. We pay TV tax or provider fee. Is it basic, or higher, or bundle pack with internet, telephone line, or else. The point is, Fan Base Turtle already pays to watch. How that payment is allocated from provider to broadcaster to commercial rights holder is not of Fan Base Turtle concern.

It is OK to pay extra if any of the Turtles wants extra - data, on board camera, pit lane camera - be own director of event. Mostly needless stuff in my opinion, but that is not the point.

We already pay for TV, and the choice is huge. And frankly, we really don`t care how much it costs to make that product on the TV. I don`t care what was investment in that soda factory, if drink is good I`ll buy.

Instead of focusing on Fan Base Turtle solvency, and potential of division of that foundation on the haves and the have nots, King Yurtle should commit every effort to his product. "

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15. Posted by cricketpo, 04/04/2019 21:17

"@maxnoble Thanks for yet another flight of fancy! Just before we all get too down on accountants let me remind you all it was an accountant that took down Al Capone.
I know this website has a leaning toward free to air F1 however F1 fans should know 2 things. 1st is that all or most free to air broadcasters have suffered from eroding advertising sales for some time now. There is just too many different and interesting ways and more direct ways to target audiences in today's world. All the cookies stored in your internet devices actually tell these people what to advertise to YOU, never mind sticking an ad on a Sunday afternoon
at the first tyre change in the blind faith you are watching. 2nd by pushing for road relevance F1 is not only ripping the current turtle from under your very feet but giving F1 a whole new turtle maybe two turtles. If F1 can engineer (for want of a better word) a separate reason for racing teams to go racing there is less dependency on all of us followers. If this comes off it could completely alter the dynamic of F1. All of a sudden we are not needed to buy Pay per view (PPV) and then F1 does not need to be concerned with the fickle wants of the great Joe Public and get on with what it does best - spending other peoples money.
As for ppv it is all about content, in the same way as well known streaming products such as Netflix. Most packages I see in the UK include a varied line up of films, boxset TV shows and sport. There may not be much of a market for F1 itself but as a broad range of TV it may have interest for a broadcaster hoping to snare us in with a loss leader and before you know it you have access to so many channels at such a price it might actually be cheaper to turn up at the circuit.
One final warning I should give you - Ru Paul's Drag Race is NOT motoring show!"

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