Following a rather odd conversation on The Formula 1 Blog with Anonymous, it is becoming increasingly clear that a breakdown of what it would take for Sky to break even is necessary. This is, after all, the main reason why the attempt to transfer the UK rights from free-to-air to pay-TV is likely to have medium-term consequences on non-UK F1 fans. It's a bit rough-and-ready because of the timing, but I will happily tidy up anything that you think needs tidying later.

Wimbledon never fails to get full crowds even though few people in Britain follow tennis otherwise. Silverstone never failed to get full crowds even in years where British F1 figures fell like a stone due to Schumacher dominating. You'd be surprised at how low an audience conversion is needed to fill a stadium, so saying that test cricket grounds are still full doesn't say anything about what's going on with the TV side of things. Attending a cricket match is a special occasion. It does not mean that watching cricket is still bread-and-butter to people. The BARB statistics do not lie and they say that Sky struggles to get a seventh of the audience Radio 4 Longwave does for cricket matches, and that both combined are far lower than cricket got before Sky took over. The numbers end up working for the sport largely because Sky can afford more, but that is reliant on capping the level sports can charge it. That works financially for sports that seriously undervalued themselves (primarily by only considering the BBC pre-Sky, which of course can't run adverts to offset its expenses) but F1 hasn't done that since 1981...

I suppose if one calls 234,000 rugby viewers (2008 League World Cup) with Sky compared to over 2.6 million for the previous version* pre-Sky a success, then rugby might be considered a success. From Sky's perspective, it's a relatively successful sport because the low sanctioning fees means it can make quite a bit from the deal; from the perspective of a rational outsider surveying the effects on the sport's support base, it is a disaster.

The more one looks at the effects of Sky getting involved in sport, the worse it looks for sport. If a sport wants to go from being a majority sport to a minor one, going the pay route's a pretty effective way of doing it. That's been demonstrated time and again.


Advertising is of course part of Sky's arsenal when paying for things. However, Bernie fees are not the only costs it faces, and F1 isn't football. It costs £10 m per year to produce F1 the BBC 2011 way and to do all the extra features Sky has said it'll do, it will need to spend even more than that. ITV couldn't get that much from sponsorship when it had F1 in boom time, so given that Sky isn't having in-race advertising and is operating in a recession, it'll struggle to even meet its production costs through advertising, let alone start tackling marketing, satellite rearrangement fees (yes, making a new channel costs money) and the Bernie fee (which is now four times higher for Sky than the BBC's production fee was). 

Even so, my original calculation of a million new customers being needed assumed, optimistically, that the non-Bernie fees would be entirely covered by advertising. (Before the amount Sky paid was announced, I tended to say "between 0.5 and 0.88 million" when commenting on the internet; I was bargaining on Sky doing some sort of cost calculation prior to purchase). The £40 m from subscriptions prior to F1's arrival has to be ignored on the grounds that they'll have bought other contracts with them. These naturally must be maintained, with the possible exception of programs that directly clash with F1 programming. Other sports may not be as expensive as F1 but they do have acquisition and production fees. Instead, the calculation has to be done from base.

There are two ways of getting Sky F1 - one using the HD pack and the other using Sky Sports. The Entertainment pack cost (common to both routes) has to be ignored because the channels on the pack are funded by it, along with all their programming. Much like the BBC, each Sky channel is funded separately. Terra Nova, for example, is not a free show. Even through the HD route, the HD money is not free because all the programming on Sky has to be converted to HD. If Entertainment and Sports are priced in relation to their values to Sky, then only half the HD top-up can be assumed to be available for F1.

Let's assume that the only sport that the people are interested in is F1 and that HD buyers don't buy any other packages (if we don't, again, the figures look even worse for Sky, as that person's subscription fee would then need to be shared among however many additional contracts corresponded to that individual's customised viewing habits). The cost of Sky Sports 1 and 2 on top of that package is £20 and this is the maximum amount Sky can take in per customer per month with regard to F1. HD, once the half for Entertainment package upgrading is removed, only contributes £6.125 per customer. Only new-to-Sky customers can be assumed to be taking the package for the full 12 months, so only the 7 months where Sky has an exclusive race can be safely counted for Sky's revenue (let's assume for now that Bahrain goes ahead).

I am also going to assume that everyone who watches F1 is a singleton who never has the TV on when entertaining and doesn't have lodgers or other unrelated co-residents similar sneakily "borrowing" a chair during races. Otherwise, each viewer is only contributing part of the subscription payment. I'm also assuming none of these people are bar, pub or club owners because then every patron of the bar/pub/club is contributing towards the subscription.

Remember that the Bernie escalator ensures that prices go up at least 10% every year (that fee quoted for Sky's acquisition will be the first-year price; Bernie rules ensure it goes up and up after that). The £40 m initial annual price becomes £77.95 m by the end of the contract Sky has. If that sounds high, the fee the BBC paid went from £25 m to £40 m a year from one end of its contract to the other (projected but never reached due to renegotiation) end; if it hadn't it probably wouldn't have needed to let F1 go. That's compounding for you.

At the moment, 30% of Sky customers are on HD (therefore using the cheap route) and 70% on SD (therefore would need the expensive route). Being optimistic and assuming this proportion does not move any further towards HD despite more HD subscribers being in Sky's overall business plan, Sky needs 0.95 million new subscribers (rounds up to 1 million to the nearest 100,000 subscribers) that didn't care for any Sky-carried sport bar F1. To break even. Compounding means it doesn't have to get them all immediately - a 2012 figure of 0.53 million is enough for that specific year - but Sky's sales definitely aren't going up by the 10% per year needed simply to keep up with Bernie (they only increased by 3% per year for the last 2 years - it's pretty consistent at the moment). 

Even 0.53 million is over twice as many viewers than Sky gets for any part of its non-football programming. It is unlikely Sky will get the figures it needs because past and present data demonstrates it. This is before considering that every assumption I've just detailed here - advertising revenue, house occupancy, HD, caring about other Sky sports, Bahrain, the extent of Bernie escalator - is more likely to go against Sky than in its favour with regard to making F1 pay, and therefore require even more people to sign.

(For the curious, on the assumptions made in this item, it would take 2.08 m cumulative new customers for Sky to be able to justify taking all 20 races in the first year of the next broadcasting contract of 2018, assuming the minimum number of new customers were signed up as needed to let it break even in each previous year, that no additional fee was made for exclusivity and assuming Sky merely wished to break even with F1 due to its high profile).

Japan F1 is mostly free Fuji TV. There is a pay option (Next) but it gets 1/6 of the audience the free version does (helped by the fact the same provider on the same platform shows the free and pay options - not the case in the UK). Brazil is primarily covered by GloboTV, which is free-to-air and easily beats the pay option for popularity. Italy and Germany used to have pay TV options (through Sky) but they've folded due to lack of interest. Some other countries with smaller audiences have pay-only, and their audiences went through the floor. This has left some channels dropping F1 altogether and others putting it on progressively higher-cost options. That's what always happens with pay TV concerning sports that were previously shown just fine on free-to-air**. The audiences shrink and so the pay TV provider has to rely on cheap rates to keep the option alive. Here's a hint: Bernie will never, ever, provide cheap rates.

So why are the likes of rugby and cricket succeeding despite their TV mistakes? Because other avenues of revenue exploded in the last decade or two. Sponsorship, once quite rare for a series, has become huge money, especially for drinks companies who would struggle to advertise in certain international markets through the standard methods. Ticket prices skyrocketed, turning the weekly patronage of a favourite sport to an occasional treat for the poor without turning away the rich (in fact, with more focus on rich clients as seen in the past decade, the rich are pouring in as they spy networking and hob-nobbing opportunities). The sponsorship alone accounts for why there's more money in disability swimming than ever despite it having no media profile worthy of the name and free tickets to nearly all events. The latter is why the Paddock Club in F1 is worth over 10% of the total income of F1 despite serving a maximum of 5000 people per race.

After all is calculated, Sky's chances of making F1 break even are remote. The chances of Sky keeping a sport that doesn't break even is even remoter. The chances of Bernie finding anyone willing to pay more than Sky pay him now in those circumstances is nil. That means Britain's fees will drop. It's not clear who'd pick up the rights then - it depends who has most to spare at that moment out of the not-recently-"burned" parties. What is clear is that it would cause a domino effect. Other countries would see that pay TV does not work and be able to call Bernie's bluff by not engaging in bidding wars with such channels. It would mean the prices paid by channels would fall through the floor. So would F1's revenues.

F1 would have to either seriously tighten its belt (and hope it's no longer up to the neck in debt) or die.

Quite how not want F1 to kill itself counts as "not loving F1", as Anonymous alleged, remains a mystery.  

* - In case you're wondering, rugby union suffered even worse. The Heineken Cup final, for example went from 9 million in 2005 to below 185,000 in 2007. The only reason it's still on Sky is because the Heineken Cup charges much, much less for its tournament broadcast rights than Bernie does and the BBC is currently trying to sell sports rights rather than buy them.

** - Football, in case you're wondering, was not shown fine free-to-air before Sky got the rights; the BBC could typically only show one match a day - and hardly ever in primetime - due to broadcasting balance requirements, whereas Sky was able to show multiple ones, at any time of day, almost immediately. Being able to see twice as many matches means twice as many people are going to be interested, so it matters less if no single match gets much in the way of viewing figures compared to free-to-air - the sheer number of matches viewable through the multi-channel, more specialised pay TV system meant that many small parts became a bigger sum than the BBC could achieve. Also, people can't advertise on the BBC, so when Britain's favourite sport went to the advertisable platform, advertisers naturally paid top dollar to be associated with the sport. Football is, economically speaking, pay TV's one big sporting success.

I've had a bit of a creative dry spell recently. That changed this evening when I saw WTF1's entry about the Formula 1 Wikipedia game. This is a game where you have to try to get from a random Wikipedia page to the "Formula 1" page in 6 clicks or fewer using only links in the pages themselves. It's based upon the "six degrees of separation" concept and it helps if you can make broad associational links... ...while allowing for certain weaknesses in Wikipedia's articles.

Take my first successful attempt, for example. The "Random Article" button placed me at Omak Airport (an airport in Washington used in World War II). You might initially think such an article was about as helpful as Lake Tanganyika Stadium (where I started the previous - and first - time). However, the article mentions certain trivia about the airport, including the airstrip construction material... ...Asphalt.

Now asphalt is used in all sorts of roads. Sadly, there was no mention of motor racing of any kind in Wikipedia's asphalt article despite 85% of the USA's asphalt being used in road construction. That said, in 1835 - the early days of European asphalt usage - the largest project involving the new material had 24,000 square yards of ground was covered for easy access around the... ...Place de la Concorde.

When I saw that I thought, "Wow! This will be easy - the FIA lives at the Place de la Concorde and the FIA article surely mentions Formula 1 among its activities!" Not so fast! Pretty much every other significant feature of the Place de la Concorde is mentioned (it features, among other things, 8 statues representing major French cities, the French National Assembly and the American embassy), but no mention of the FIA offices that are also there. Oh well, at least France does have a long and storied history in Formula 1...

which isn't mentioned in the France article. There is a lengthy sports section which describes a great variety of sporting activities in France. There's even a motor racing bit. Which talks about the 24 Hours of Le Mans.

The article on the 24 Hours of Le Mans is lengthy. It turns out that in that length, there's a part about Peugeot introducing KERS for the 2009 event which mentions its similarity to the Formula 1 version, but I missed it because I thought I'd seen the perfect link in the "Purpose" section. The first line read, "At a time when Grand Prix racing was the dominant form of motorsport throughout Europe"

I thought "2 clicks and home in the 6 required!" and for once I was right. Grands Prix were the original form of motor racing and many of the series that followed adopted the terminology for their individual events. Formula 1 is the most famous of these. In the article, it mentions that motor racing was started in France, but France's accomplishments with regards to sports are so extensive that this didn't even warrant a mention in the France entry.

Some of my Wikipedia wanderings were a bit shorter. One of them started me at Way Out West (jazz group), which includes West African drums, a dan tranh (a Vietnamese zither) and dan bau (a Vietnamese one-stringed sound box). It has performed in several notable Canadian festivals but is based in the suburbs of Melbourne, Australia.

Melbourne is the second-biggest city in Australia, originally founded by settlers from Van Diemen's Land. Whether this has any non-coincidental connection to the Van Diemen single-seater car manufacturer is unknown. What is known is that it hosts the Australian Grand Prix (Formula One). So that particular wiki walk was completed in a mere two clicks. Maybe Way Out West should be invited to the 2012 F1 Rocks, seeing as the next F1 Rocks concert has such noted non-rock musicians as David Guetta, Taio Cruz and the Sugababes...

Amusingly, the next and final F1 Wikipedia attempt I did started in a motor sport article: the 2009 Formula Lista Junior season. It is a Formula BMW series running from April to September that started in 2000 and is still happening. Most of the drivers and all but one of the teams are Swiss, but the law in Switzerland means they cannot race in their home country. Instead, they race in France (including two visits to Dijon), Germany and Italy, benefiting from a rule allowing national-level racers from anywhere in the EU or a limited number of other countries reciprocal access to appropriate series in any country involved in that agreement.

That said, the 2009 title was not won by a Swiss driver, but an Italian one - Kevin Giovesi. He won 5 races out of the 12 and scored nearly 50% more points than the second-placed Sven Ackermann (who was the first in a cluster of six Swiss drivers). Some progression is clearly possible because even fifth-placed Sandro Zeller competed in three different F3 championships during 2010. Kevin Giovesi went into Italian F3 but came only 15th while Sven appears to have fallen off the radar completely.

Returning to the wiki walk, the final round happened at Monza.  Needless to say, the Monza article casually mentions the fact that it hosts Formula 1 once... ...or twice... ...or 27 times (admittedly including reference lists). So that wiki walk got me to the destination in 2 clicks, but in a very interesting way for a motor sports fan. It's always nice to discover a previously-unknown racing series :)

AKA Mosley On TV

AKA Mosley On TV

Date: November 1 2007

 

[ Mood: Muddy Talker ]

[ Currently: Reading Oxford Dictionary of Celtic Mythology by James MacKillock ]

The latest part of my analysis was prompted by an interesting 22-minute interview of Max Mosely by BBC's Hardtalk programme. The interview was largely about the McLaren/Ferrari case, and it does indicate that the off-line press can be a lot slower to wield their big guns than their on-line equivalents.

Before I give my own opinion, I thought it would be interesting to give you an exercise. The interview was broadcast on TV, but it is also available as a video on the BBC site. Listen to it throughout, forgetting any comments you may already have seen on this particular interview. The exercise is to see how well you think Max Mosely copes with this style of interviewing.

Hardtalk usually deals with politicians, which is why the interview style is so uncompromising. It is not a style seen or encouraged in the F1 paddock. Once the interview is over, then have a think as to how Max's answers would play out to the people watching who, as the interviewer puts it, "have no interest in Formula 1 but are very interested about the integrity of the major sports".

If you can't get the link to work, here are some choice quotes from the early part of the interview, to give you a flavour of Max's responses:

"Although it was very annoying for us and for the people involved, for the public, it just really adds to the general interest"

"Luca gets a bit carried away"

"I'm afraid one can only conclude they [McLaren] did [lie to the FIA about the confidential information]"

"Once we discovered that it was the case [that Pedro de la Rosa had e-mailed Fernando Alonso] it was not credible that no-one else in the organisation knew about it [the information]"

"There had been a stream of 300 messages for two or three months, then came the document"

The whole exchange about whether not taking away driver points for cheating is fair at the 5-minute mark is really interesting. Max says (or rather agrees) that Pedro de la Rosa and Fernando Alonso's exchange of Ferrari information was itself clear cheating (regardless of what led up to it), and then has an intricate debate about why Fernando (and, for that matter, Lewis) was allowed to keep his points. He didn't come out of it too well, with two distinct attempts to wriggle out of the interviewer's conclusions from his own previous statements.

"There's a strong Spanish and South American element in the World Council"

"Bernie isn't the main man in Formula 1...On 14 separate occasions, Bernie has advocated something which he didn't get in the World Council"

"Even if they excluded the cars, we are not obliged to alter the position of those below. Certainly we don't have to for very minor technical infringements"

I could go further, but you get the flavour of it from there. These are not answers that sound particularly good for Formula 1. We who are used to F1 probably shake our heads and regard this as typical Max. To a newcomer, these would be quite astonishing revelations.

Luckily for Max, Hardtalk is a late-evening programme which usually doesn't get massive audiences. However the audiences it does get are well-educated and knowledgeable. They are also used to seeing politicians on the programme who are trained for just this sort of interview. They would not have known whether Max had been trained for this.

The reason why the audience of the TV programme is important is because well-educated, knowledgeable people tend to rise to power in their own circles. In particular, this sort of programme gets watched by political commentators, so when Max was interviewed, the results quickly percolated through relatively unsympathetic political commentators through to the paper's sports departments. Their critical opinions would surely have accompanied the news.

Perhaps the sports people would not have been quite so keen to put this story front and centre if Max had found a way to not mention Mr Hamilton's name. He didn't. [url=http://www.pitpass.com/fes_php/pitpa...s_art_id=33339]
By criticising Lewis, he guaranteed a bad press for himself[/url]. You would have thought he'd learned something from Fernando Alonso's bad treatment in the hands of the British press. Apparently he hasn't.

Max's bizarre comments on the appeals courts won't help him either. If you want to maintain the neutrality of an appeals court, you do not cite your opinion - especially not if you are being questioned on the neutrality of said court. Nobody likes to see internal contradiction, especially from people who have influence over anything important to them.

The moment the off-line press decided to take a piece out of Max Mosely, the on-line world heard about it - and complained about it. Off-line papers generally have on-line vectors to their empires now, so even people who live in countries that do not get the interview will find out the salient points. The succession of Spanish interviews we've been "treated" to this year bear testament to this - again, Fernando Alonso would have had a more sympathetic audience had the on-line world not carried his messages across linguistic and geographical boundaries.

Of course, this is all entirely predictable to anyone who's been following F1 for a long time.

Max is used to quite cushy paddock interviews, where he can largely get away with vague and contradictory answers due to a combination of power and time constraints.