Formula 1 deal re-opens old debate: free to air v pay TV

Formula One announced on 29 July that the BBC and Sky Sports will share TV broadcast rights in the UK from 2012 to 2018, leading to howls of protest from fans. In a trade-off between revenue and audience reach, Formula One is trying to get the best of both.

The BBC will show half of the races live on TV with the corresponding qualifying and practice sessions. It will also keep highlights and radio rights for all of the races. Sky, meanwhile will show all races, qualifying and practice sessions live.

The key issue for British consumers is that the BBC only charges an annual licence fee per household of £145.50 (frozen for six years from 2010) whereas an annual subscription to Sky Sports will cost an additional £487 with future rises all but certain.

There are several million Sky Sports subscribers in the UK but the potential audience is a fraction of that on the BBC.

For the Formula One rightsholder the additional revenue is highly desirable. The racing teams will earn a share of the increased pie but they also need the largest possible audience to maximise their appeal to sponsors.

According to news reports (see for example the Guardian), they will be seeking clarification on the deal.

Sky has been very successful with its sports broadcasting, driving subscriber numbers through live football rights in particular. Formula One has a large, loyal fan base, many of whom are probably not existing Sky Sports subscribers so it seems a good fit. However, the big question is whether hundreds of thousands of additional customers will now sign up for Sky Sports because they want to watch the full season.

Production costs for broadcasters covering the Formula One season are very high due to the constant travelling and technical demands. Without the advantage of exclusive rights and a captive audience, it could be that either the BBC or Sky Sports find the costs too onerous before the end of the contract in 2018.

For the future health of Formula One it is important that new young fans are constantly being recruited. While Formula One earns revenue from many markets, the UK is one of the largest.

Cricket and other sports have debated in the past the rights and wrongs of accepting the highest bid for TV rights (which tends to come from pay TV stations) or the option which will give the broadest audience (usually from free to air TV stations).

After European Union intervention, rights for the UEFA Champions League in the UK have been shared among different TV stations. The outcome is a certain level of confusion among spectators but they do at least have an opportunity to watch a selection of matches on free to air TV. According to the Independent, European law may prevent national TV rights deals in future.

For the moment Formula One’s deal looks a reasonable compromise but it will take time to see whether it is getting the best of both worlds – huge revenue and a broad audience – or an unsustainable mish-mash.

Fans may be unhappy but Formula One is in a strong position – many other sports would be delighted to face the same dilemma.

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