On the heels of its popular Formula 1: Drive to Survive docuseries, which gave viewers a behind-the scenes look at drivers and racers in the Formula One World Championship, Barclays analyst Kannan Venkateshwar wrote in a report Friday that perhaps Netflix should make the popular racing circuit the target of its next rights purchase.
Analysts have been waiting for years for streamers like Netflix, Amazon Prime Video, Facebook and Google to get serious about sports rights, but so far most have merely dipped their toes, like Amazon renewing its deal for Thursday Night Football rights in 2020 and streaming select Major League Baseball games. And while others have made small investments in sports, for the most part they haven’t yet written the mega-checks that some pundits have said they are capable of.
In his Friday note to clients, Venkateshwar wondered if the entertainment business is looking at streaming sports all wrong. For one, he said, the industry should stop modeling sports content the same way they have modeled scripted and nonscripted content for decades. And secondly, he said streamers may be looking at the wrong sports.
Venkateshwar argued that one of the biggest issues facing new entrants and sports leagues is that distribution of traditional sports like football, soccer and cricket is that they already are widely distributed around the world.
“This ironically makes the biggest sports the least scalable,” Venkateshwar wrote, adding that may be why potential new entrants to the sports game like Netflix may find traditional sports the least attractive.
Part of that is due to the tribal nature of most sports. While streamers have dipped their toe in rights auctions for traditional sports like NFL football, NBA and NCAA basketball, MLB baseball and soccer, which he said has helped drive awareness, but is more similar to “how a Korean show like Squid Game became popular globally.”
Sports, he said, has much deeper cultural connotations compared to storytelling.
“This could be why Turkish shows are a bigger rage in Latin America, at present, than local telenovelas but in terms of sports, it is tough for us to see any sport replacing soccer’s pre-eminence in Latin America or Europe,” Venkateshwar wrote.
“The underlying driver of this scalability is the fact that the connective tissue for consumption of niche sports tends to be inherent to the sport itself rather than underlying cultural storylines,” he wrote. For example, Formula One fans share at least some affinity for cars, their underlying brands and even the individual teams and drivers, all of which are less anchored in any particular culture.
“This may make live carriage of a sport like Formula One a lot more organic for a service like Netflix, especially given the success of affiliated programming like Drive to Survive,” he wrote.
But cultural scalability isn’t enough for sports like Formula One and the others, Venkateshwar continued, adding that in order for new distribution channels to open, streamers will need to ramp up the viewing experience, with things like virtual paddock clubs, in-cockpit or VR/AR viewing and virtual and real merchandise.
“This allows for content continuity without distinct boundaries for a given form of content which is why a sport like Formula One could fit well into services like Fortnite, Roblox or Netflix,” Venkateshwar wrote.
Formula One could be more attractive because it has fewer events (about 22 races this year), global locations, is technology-heavy and has direct participation with global brands. While baseball has more games — about 2,400 each season — they are centered more on local markets. Baseball fans in Arizona don’t watch the Seattle Mariners and vice versa.
For traditional sports, sports betting is most likely the best experiential enhancement, and many distributors are making inroads in that industry. But for distributors like Netflix, the better path may be through sports like Formula 1.
“Over the near term, we believe Netflix could make its live sports foray by potentially bidding for Formula One broadcast rights in the US in ’22 and Europe in ‘23/‘24,” Venkateshwar wrote. “As a sport, Formula One happens to be one of the most global in terms of reach across all sports but until recently, it struggled to grow its audience, especially as media rights moved away from broadcast to pay TV in different parts of the world. Over the course of the last year however, the sport appears to have seen a resurgence in interest even from casual fans due to the popularity of Netflix’s documentary Drive to Survive. This synergistic growth of the sport and its content extensions could be a significant opportunity for Netflix to present sports as a continuum in a manner that is unique, without content boundaries.”
According to Barclays, while Formula One has dipped in popularity over the past few years — unique viewership has fallen from 490 million in 2018 to 433 million in 2020 — in the U.S., on the heels of the Netflix docuseries, it has risen. Barclays estimates that Formula One viewership on ESPN has grown from 670,000 viewers in 2019 to 920,000 so far in 2021.
And in the U.S., Formula One events are attracting new fans. During its Q3 conference call with analysts on Nov. 5, Formula One Group CEO Greg Maffei said of the 400,000 people that went to the U.S. Grand Prix event in Austin, Texas, on Oct. 24 — setting an F1 attendance record — 70% were first-time attendees. The usual mix is about 30% first-timers.
“We have never seen such a crowd in Austin,” Maffei said on the call.
Venkateshwar noted if Netflix were to dabble in Formula One, its biggest impact would be on churn, given most fans would already be subscribers. But he added that for every $100 million in annual rights costs and 2% churn, Netflix would need just 136,000 new subscribers to break even. For Formula One and others like UFC and WWE, a relationship with Netflix would be beneficial because it would likely draw fans in from areas outside its normal scope. The analyst noted that 60% of F1’s media rights revenue comes from five countries which account for 35% of its total viewership.
“Growing rights fees outside of these markets has been a challenge despite the scale of global viewership, not just for Formula One but also other global sports like WWE and UFC,” he wrote.
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Mike Farrell is senior content producer, finance for Multichannel News/B+C, covering finance, operations and M&A at cable operators and networks across the industry. He joined Multichannel News in September 1998 and has written about major deals and top players in the business ever since. He also writes the On The Money blog, offering deeper dives into a wide variety of topics including, retransmission consent, regional sports networks,and streaming video. In 2015 he won the Jesse H. Neal Award for Best Profile, an in-depth look at the Syfy Network’s Sharknado franchise and its impact on the industry.