Over The Top: three words all Formula 1 fans will be hearing a lot more as the sport’s commercial rights holder Liberty Media – the owner of Formula One Management – converges F1 and digital platforms in its quest to grow F1 audiences by offering fans – both present and prospective – a richer, more varied viewing experience.

OTT has many meanings. Urban Dictionary, for example, defines the term as “something done outrageously over what it needs to be”.

But in the media sense the term describes the distribution of video and audio content via the internet, bypassing traditional service providers. Thus communications platforms such as Skype and Whatsapp are OTT, given that they bypass traditional telephone platforms, and directly connect the parties. True, telephony companies may provide connectivity, but the content does not run via their platforms.

Apply this concept to video transmission and you have the essence of Netflix or Amazon Prime. Think F1 in this context, and you have the sport’s new content steaming service, to be launched during the Australian Grand Prix weekend, in a fortnight.

Simply put, F1 plans to deliver video content directly to fans via broadband internet, thereby bypassing traditional broadcasters. As outlined here, around 40 countries have been identified for introduction at launch, with the rest to follow as and when existing broadcast contracts expire, or by negotiation.

The offering is impressively extensive, having upwards of 20 different feeds, offering in-car, paddock, pit lane, interview, data and general race channels. In short, fans can become their own producers, able to switch and swap feeds as the fancy grabs them.

“Actually it’s a bit groundbreaking from a sports perspective in that, for the first time ever, one individual sport will be streaming 24 different feeds from the same event on a live, simultaneous basis,” explained Frank Arthofer, F1’s head of digital and new business when he unveiled the service last week during F1’s first pre-season test. Just imagine the data generated by 24 streams during a two-hour race.

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That Liberty would take F1 down the OTT route sooner or later is a given, with the global connectivity requirements having been put in place by long-time F1 communications partner Tata. Liberty, though, appears to have rushed the final parts of the project through in about a third the time usually required.

In the words of Arthofer, “This [OTT] type of service would typically take about 18 months to build, and we’ve done it in six which is quite a feat from the team who’s worked on it and we have a number of partners involved, again including our partner Tata.”

Why the haste? Despite Arthofer’s comment that “the biggest pressure on us is not a fiscal one, but to deliver a great product and stable experience for fans”, it is no secret that Liberty’s 2017 payments to teams – their collective shares of the sport’s $1,8bn annual revenues – dropped by $47m over the previous season. For obvious reasons this has not gone down well.

The teams shared $920m, around 68 per cent of F1’s underlying revenues ($1,351bn), in turn around 60 per cent of gross income ($1,8bn). The reason for the reduction is largely linked to Liberty’s rising cost base – folk like Arthofer are expensive, and over the past 12 months headcount, mainly managerial and executive, has been boosted by 50 hires. Add in fancy new offices in Lower Regent Street, and it is little wonder operating costs have shot up. Essentially, the teams’ share amounts to 50 per cent of gross income.

All this has affected Liberty’s NASDAQ share price (above) – the ultimate measure of a listed company’s performance – which currently hovers at $31.90, or just $0.05 above its 12-month low. Clearly the company needs to pull out all stops to impress the markets, and what better way of achieving that objective than by rolling out a headline-grabbing, new-fangled, direct-sale, premium video streaming service in time of the for new season?

Hence the numbers trotted out in Barcelona by Arthofer – an American media graduate who interned with the NBA before moving to Disney and ESPN (where he reported through Sean Bratches, F1’s now-commercial director), and then Boston Consulting, where he worked on digital transformation. F1, according to Arthofer, has around 500m fans, or five per cent of the world’s population.

“If even conservatively one per cent of that customer base is a super-avid hardcore fan, that’s a five million addressable audience to sell this product to, who would potentially be willing to pay the incremental fee for what is really the best way to watch Formula One in the market.”

Arthofer stated that the cost of F1 TV Pro would run out at “$12 month, converted into relevant currencies” – so £8/month – while F1 TV Access, a lower tier offering providing archive material going back to 1981 would cost around three dollars (two quid). Tellingly, Arthofer did not provide a projected split between the two tiers.

Here the maths gets complicated by the take-up split between Pro and Access. Let us, though, guesstimate $5/month per subscriber. By his reckoning that pans out at $250m per annum – once the full potential “addressable” audience has been reached – or roughly a third of F1’s current TV income. On the basis of the calculations above, the teams should pull around $120m of that – more than making up for recent losses.

However, this calculation is predicated upon a take-up of five million fans globally, made up of four million Access subscribers and one million Pro hardcore viewers. Fewer Pro numbers obviously affects income – F1 and team – proportionately.

History relates that F1 fans are fickle. Whether they describe themselves as ‘hardcore’ doesn’t necessarily mean can afford to shell out for their passion. For example, in 2015 around 3m viewers tuned in to watch BBC’s free-to-air offering; Sky pulled about 20 per cent of that despite Lewis Hamilton dominating the season. In Germany, Sky TV was unable to agree terms with F1, and has now pulled out completely. Ditto Sky LatAm.

More illuminating, though, is the fate of F1’s first digital TV service – offering a choice of six “be-your-own-producer” channels – launched as F1 Digital + by then-commercial rights holder Bernie Ecclestone to much fanfare in 1996. True, at the time it was offered in conjunction with selected broadcasters, but that was a function of available technology: the internet, where available, operated on a dial-up modem basis, leaving digital broadcast technology as the only option.

For reference, the channels offered at the time were:

Master – A studio channel broadcasting the “super-signal” main FOM-produced Digital feed, during track sessions, cutting away to show interviews and studio analysis

Super-signal – The main digital world feed produced by FOM for all of Europe, combining footage from track feeds, pit lane channel and on-board footage.

Track A – Similar to super-signal, but focusing on race leaders.

Track B – Similar to super-signal, but focusing on action down the order.

Data – Live timing/data screens

Onboard – Material from onboard cameras, without commentary.

Pitlane – Footage from pit-lane cameras, without commentary.

Highlights – Rolling highlights up to the current point in the race.

This begs the question: is F1 TV Pro’s planned 24-channel set-up not a step too far? After all, the dedicated Lewis Hamilton in-car channel Arthofer referred to during his media presentation threatens to cost other teams, drivers and sponsors eyeballs. One of the attractions for sponsors is what is known as F1’s ‘adjacent moving billboard’ principle which adds colour – a dedicated in-car channel kills that stone dead.

One of the attractions of F1 for sponsors is that their brands are shown at the heart of the action. The constant jostling of images helps draw the eyes of consumers to their messages – hence, for example, the popularity of messages on trucks and buses. In contrast the human eye is not stimulated by static images in the same way. Extended in-car shots, particularly from overhead cameras, appear static while the signage-free backdrop moves.

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At the time F1’s Bernie Ecclestone invested an estimated £100m (£150m at current prices) in F1 Digital+, which charged £12 per race. It lasted just over six years before he pulled the plug, the service having attracted just 9,000 UK punters in its final year, while in Germany the subscriber base consistently ran at 50 per cent of pre-launch estimates – Michael Schumacher’s successes notwithstanding.

In short, F1 Digital+ proved to be Ecclestone’s biggest dud.

Against that background, what chance of F1 TV Pro – the money-spinner – gaining traction? For starters, F1’s latest Global Media Report claims 352m unique viewers in 200 broadcast territories, a far cry from the alleged 500m fans (note difference) Arthofer spoke of. Given that F1 TV Pro will stream into 40 countries (at launch), including the likes of Honduras and Haiti, but not three (Brazil, Italy and United Kingdom) of its biggest four markets (Germany being the other), take-up is expected to be slow.

Then there is the question of affordability: While 12 bucks per month is no big deal in some of the countries listed, in others it is a substantial fee. Indeed, one gains the distinct impression that some countries are listed simply to bolster numbers, particularly if F1 is vigilant, as it has vowed to be, about geoblocking and VPNs.

Although Arthofer believes F1 will be able to prevent those outside the chosen countries from accessing the service, this is something even long-term players in the streaming business aren’t able to completely prevent. Another potential headache is the threat of hacks. As leaks such as the Panama and Paradise Papers show, there are no guarantees that systems cannot be unscrupulously accessed or held to ransom. In such instances fans could not only be left without streams – in worse case scenarios, during title showdowns – but both F1 and the teams stand to lose income, and, above all, credibility.

Data speeds and costs are also crucial factors: Some of the countries listed have average internet speeds of below 2Mbps – Netflix recommends a minimum of 3Mbps for SD and 5Mbps for HD viewing – and, of course, those speeds are likely to drop at peak periods, while data costs in southern hemisphere countries cost an absolute fortune, with most still being reliant on antiquated copper cable transmissions and having caps in place.

Talking Netflix: F1 TV Pro will be priced roughly in that ballpark – but the former appeals to the entire family, 24/7. Will F1’s service have the same allure? To justify subscriptions it will need to.

One of the rather unsavoury side effects of ‘Bernievision’ was that world feed transmissions became increasingly anodyne as content such as in-car footage and pit lane footage was moved to the pay channel to attract viewers to the premium product. Once the service died, so the footage returned to “standard” broadcasts. Will Liberty pull a similar stunt to woo subscribers?

Equally, while Arthofer has promised that there will be no commercials at launch (our accent), the caveat has clearly left the door open for what Martin Brundle refers to as “retail opportunities” – and what could be more galling than paying ten bucks, only to sit through a bunch of commercials?

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One of the strengths of the traditional broadcast model is that broadcasters use their own platforms to advertise their wares, including F1 schedules. Many a viewer has been converted to F1 simply through channel hopping or being exposed to pre-race announcements. How will Liberty reach those potential punters? Broadcasters are unlikely to point them to F1 TV Pro.

True, Liberty does intend advertising the service on social media, but to a large degree that is a bit like preaching to the (few) converted. While F1’s social media presence has been massively ramped up over the past year – showing the largest growth rate of all major sporting properties at 55 per cent to a total of 12m across all major platforms – it started off from a low base after being all but shunned under the previous commercial rights holder. However, the point is that social media platforms are free, and not an indicator of hardcore-ness, so will they reach their target audience, particularly given that hardcore fans is an older demographic?

There is no doubt that streaming is the future of sport television, and that F1 must inevitably (and eventually) move in that direction. While many believe that the introduction of the F1 TV Pro streaming service has not come a season too soon, one cannot help but feel that it has been hastily introduced for many of the wrong reasons. For example, at launch no mobile device apps will be available.

As with F1 Digital+, the commercial rights holder will have one shot at launching the product, and as such needs to get it absolutely spot on. But, will it be? The answer will be revealed on 22 March.

Follow Dieter on Twitter: @RacingLines

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