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F1 digital division loses 1.6m

NEWS STORY
07/10/2019

Almost from the moment Liberty Media got its hands on the F1 steering wheel, much was made of how certain aspects of the sport had been left in the dark ages under its previous management.

While the sport's new owners felt that a major shake-up of the sport's basics, including levelling the playing field and reducing spending, needed a serious revamp, coming from a media background Liberty saw digital as the way forward for the sport, both in terms of social media and streaming.

Within week of purchasing the sport the rules on posting content on social media were relaxed, with the teams all taking to Twitter and Instagram as pre-season testing got underway.

As the sport steadily boosted its following on social media - up to 18.5 million by last year - Formula One Management announced its plan to stream races straight to fans devices.

Launched in May 2018, F1 had high hopes for its F1 TV Pro service, with the company's global head of digital, media and licensing, Frank Arthofer, saying at the time that he was "optimistic that the opportunity size is significant".

"We have by our estimates around 500 million fans in the world, which is quite a number," he said. "If even, conservatively, one percent of that customer base is a super avid hardcore fan, that's a five million addressable audience to sell this product to."

Understandably, F1 bosses sat back and waited for the cash to come rolling in.

Unfortunately, while fans greeted news of the service, American broadcaster NBC did not, refusing to compete with the streaming service while paying for the privilege, it withdrew a 32.4m ($40m) bid to broadcast F1 in the United States for the next seven years.

With Liberty now facing the prospect of not having live TV coverage of its sport in its own backyard, it subsequently agreed a deal with ESPN, for which there was no fee.

Despite Liberty's optimism, investment bank Morgan Stanley took a somewhat more practical approach, forecasting that F1 TV Pro would only attract 10,000 subscribers in the United States and around 94,000 in the rest of the world.

It wasn't long before it became clear that Morgan Stanley too had been somewhat over optimistic.

From day one, the service was beset with issues, and in its second year, F1 boss Chase Carey is still referring to it as a "beta project", even though fans are paying for the privilege of being the guinea pigs.

Race-after-race the poor souls at @F1Help are bombarded with emails from angry and frustrated fans as the issues continue but are seemingly never resolved, leading to refunds having to be made on a number of occasions.

While F1 is listed on the Nasdaq and therefore has to file quarterly and annual results, the company itself is based in the UK and consequently each of its divisions has to file annual financial statements.

According to Forbes, despite Liberty's optimism and the money invested, far from making a profit last year, its Digital Media division made a 1.6m ($2m) loss.

The financial statements confirm that the company's principal activity is "the sale and exploitation of digital rights and services in connection with the events of the... Formula One World Championship", and reveal that last year revenue was up 120% to 17.8m ($22m), "driven by the launch of new product offerings in 2018 including the F1 TV Pro service, updated mobile applications, and the purchase of digital advertising inventory by a fellow Formula 1 subsidiary."

Revenue from subscription based services doubled to $6.1 million but this represents only 27.9% of the total with the rest coming from other digital media rights.

Costs for the digital rights, including a payment of 812,000 ($1m) to F1's operating company Formula One World Championship for a licence fee, were up 56.5% to 19.5m ($24.1m), but even without this, the division wouldn't have made a profit as its operating loss came to 1.7m ($2.1m).

Interestingly, the costs don't include the staff working on social media - including those poor souls at @F1Help, because they are all employed by Formula One Management.

"The directors consider the performance of the company during the year to be satisfactory and in line with expectations as the company continues to invest in the development of its digital and social media platforms and products, and believe the company to be in a sound position at the balance sheet date and, with the progress that is being made, well positioned for the future," declare the financial statements.

While the net loss last year of 1.5m ($1.9m) was down on the 3.5m ($4.4m) loss of 2017, there remained a shareholders' deficit of 11.9m ($14.7m).

Worryingly, only a couple of months ago, Carey continued to describe TV Pro as a "work in progress", insisting that it is "getting closer to our targets both in terms of content and reliability".

However, other than the numerous ongoing issues with the service, there remain doubts as to whether it is actually relevant to the sport's core audience.

"Formula One's audience is older, it's wealthier and it is very sophisticated," a senior US TV executive told Autoweek, "but while they love technology in Formula One, they don't want to watch it on their phones, or their iPads or their computers. They want to watch it on a big screen. The average age of a Formula One fan in the US is 59 years-old and that viewer is not going out and buying apps especially if he can watch it for free on ESPN."

Elsewhere within the company, Formula One Hospitality and Event Services (FOHES) recorded an 8% increase in hospitality sales to 74.4m ($91.5m) in 2018, while Formula One Research, Engineering and Development, which is at the heart of the planned new regulations for 2021, spent 3.3m ($4.1m) last year even though there is still no sign of the teams agreeing to them.

Nonetheless, the financial statements state that F1 "is confident that through these discussions terms will be agreed for the teams to continue to participate beyond 2020."

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READERS COMMENTS

 

1. Posted by Rock Doc, 08/10/2019 17:01

"Looking at the numbers F1 has a huge potential for making a lot of money. Just ask Bernie.

I can't help noticing that almost at every level the new management seem to making very hard work of realizing the potential. Constantly shooting themselves in the foot every time they take a step forward. The NBC contract being a good example.

My concern is that as they seem to continue to fumble around in the dark they are going to lose their audience and that potential. And we as fans are going to lose the sport we have love.

How much longer can it go on like this. 2020 is next year and still we wait for the new regs. By the time they get their digital division out of beta mode there may not be any racing worth following."

Rating: Positive (1)     Rate comment: Positive | NegativeReport this comment

2. Posted by Francis, 08/10/2019 14:03

"The biggest problem with the F1 digital platform is that is simply does not work as advertised. The IOS version lacks basic conformity to Apple's standard - just using landscape vs portrait mode is a big fail. There is zero native app support for Airplay (even though you get Airplay on the internet with Safari), and by now they should have been targeting cord cutters by releasing a Apple TV and Chrome App but that is not even discussed. Finally, the app it self is very buggy and I constantly have to reinstall after updates. In addition, when they launched the service there were promises of full weekend sessions and full season access to races, yet truthfully they are slowly removing most full races session and replacing them with race highlights, as for the FP and Qualifying session most of those have simply disappeared. For the premium price they charge for their service it is a shame it appears to be stuck in limbo unable to meet the basic promises they made to their consumer at launch."

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3. Posted by TokyoAussie, 08/10/2019 3:38

"Here in Japan, the only thing available is the live timing app (the standard F1 tv app, or whatever it is called these days. TV Pro is not available). The live timing app is still not a shake on the timing app it replaced. The constant demands from fans that they just bin it and reboot the old app (again) go ignored. To be honest, I even ignore the timing info these days. I have the app just to get the English commentary, which is always about 30 seconds to 1 minute out of sync with the timing provided in the very same app!

If Liberty cannot get the live timing to work in the live timing app, what hope are they to ever fix TV streaming. Other companies around the world with F1 streaming rights manage to stream F1 OK, so how is it that F1 cannot stream F1 without problems? Or design a live timing app that works?

I have pity the F1 Help folks on Twitter. Perhaps Liberty should find a way to monetize that. "

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4. Posted by BrightonCorgi, 07/10/2019 19:26

"Everyone pirates the formula1.tv content. Kind of pain in the ass to go from one driver cam to the next. Seeing the broadcast without commercials is neat. Just like being there. The pit lane cam is kind of neat too, but thinking users are going cam to cam is not the reality."

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