How F1 Future-Proofed Its Audience

_{Additional reporting by Caroline Reid}

Over the past three years Formula One has transformed the way it interacts with its fans. It has driven up its social media content, introduced an eSports league, developed a Netflix documentary series and launched the F1 TV Pro online streaming platform. These steps have boosted its appeal to a younger audience and, according to Mercedes team boss Toto Wolff, it is paying off.

The change in strategy came when F1’s current owner Liberty Media got the keys to the business in a $4.6 billion takeover in 2017. Making F1 more appealing to a younger audience may seem like a no-brainer but it was actually a bold gamble as the sport had little track record of monetizing digital media. It didn’t get off to a flying start as F1’s digital and social media division made a $1.9 million net loss in 2018 according to its latest financial statements.

However, it has had a much more turbocharged impact on the demographics of F1’s audience. This came to light in a recent Q&A on Reddit with F1’s global research director Matt Roberts.

He revealed that although only 14% of F1’s television viewers are under 25, that is “in line with the global population” and “in fact, F1 has the greatest proportion of under 25s of all global sports leagues (with the exception of the NBA). Furthermore, we’ve done a lot of work looking at who is becoming new fans. 62% of new fans are under 35. Things like Netflix, esports, F1 TV pro, etc have been extremely helpful at growing those audiences.”

This has come into its own during the coronavirus pandemic. Although the deadly disease affects all ages, according to the Centers for Disease Control (CDC) and Prevention, “as you get older, your risk for severe illness from Covid-19 increases.” The CDC’s data shows that COVID-19 causes 18.8 times more hospitalizations per 100,000 people in adults aged 85 or older than those aged 18 to 29.

Making F1 more appealing to an audience which hasn’t been badly dented by the virus and is ready to get back to normal life is music to the ears of F1’s stakeholders. In fact, it could lead to car sales accelerating according to Wolff, who has steered Mercedes to the F1 title for the past six years running.

“What we are seeing in the auto industry with Covid-19 is that the youth who normally say ‘I don’t need my own car, I can rent one or I will take public transport’ are now saying ‘I don’t want to go on any public transport and I don’t want to take a plane to fly somewhere’.

Wolff adds that “suddenly there is big momentum in personal independent mobility. It is almost like being back in the 70s where owning a car meant freedom. And there is a pretty big chance that these potential clients are looking for a Mercedes because it is winning in Formula One. The visibility of Formula One is still tremendous.”

F1’s TV audience reversed from a peak of 600 million viewers in 2008 to 471 million last year. It has been fueled by a switch from free-to-air stations to Pay TV networks with the latest losses including RAI in Italy and RTL in Germany.

Pay TV stations tend to have smaller audiences than their free-to-air counterparts as they charge viewers to watch. In turn this gives them deeper pockets than their rivals which is why F1’s broadcasting revenue has accelerated by 69.5% to $762.8 million since 2008.

In contrast, the number of unique viewers watching F1 has fallen. Calculating this involves counting someone when they have watched a certain number of minutes and not counting them again even if they watch more.

The alternative method is counting every viewer of every F1 session separately which means that someone who watches several races will be included several times. Using this cumulative methodology shows that the audience rose by 9% to 1.9 billion last year. “The number went up despite the fact that we have lost RAI in Italy. We have lost TF1 in France and we have lost the BBC in the UK. I mean that is a miracle for me,” says Wolff.

“Audiences have been growing despite the fact that some countries have moved behind the paywall. I believe that this is going to go that way anyway mid-term. I don’t think that free linear TV is gaining a lot of market share. For me it is a dying species and the future is pay or streaming and the web and, in that sense, I think in terms of audiences, it is a miracle that we have been able to grow the audiences amidst those changes in customer behaviour.

“I wonder actually who is the customer that is watching free linear TV these days? Not the young ones certainly. The young ones are prepared to stream or to pay a subscription. That is going to be the future.”

Wolff is optimistic about the outlook for F1 which will hold its season-opener in Austria this weekend after three months on hiatus due to the coronavirus crisis.

Earlier this week Liberty amended the terms of F1’s $3.4 billion of borrowings to give it more breathing room. In order to comply with the terms, F1’s total debt to profit normally has to stay within a certain level. However, this limit has been deferred until January 1 2022 in order to give F1 time for its profit to bounce back from the crisis.

To keep development costs down this year, F1 will use its current car in 2021. Next year development costs will reverse due to the implementation of a $145 million cap on team budgets and in 2022 radical new aerodynamics regulations are being introduced in a bid to spice up the action. Mercedes relishes the challenge.

“We build road cars and we build race cars. This is what we do and we are are not shying away from the toughest competition,” says Wolff. “Any car manufacturer needs to develop and build their brand. Buying or leasing or renting a car isn’t a commodity, it is an emotional task that is sometimes explained with rationality such as the best emissions or the best best battery life. But at the end of the day, being in a car is still something that has a very strong connection with how you perceive yourself.”

Wolff says he believes F1 has just as much relevance to auto makers in the pandemic as it does at any other time. “I think all brands need to go through the exercise to say ‘what do we need to do in terms of targeting our clientele?’ You can’t fake what your brand stands for so what would be more authentic for a car manufacturer than to deploy activities in the most competitive, most visible global motor racing entity in the world?”