March 29, 2024

Media Cache: News Corp.’s Interest in Formula One Raises Alarms

PARIS — Rupert Murdoch has not even signed a check yet for British Sky Broadcasting, his most recent blockbuster acquisition project, but already his son James is looking for ways to enhance the pay-TV company’s programming lineup.

Final regulatory approval for the purchase of BSkyB by News Corp., the Murdoch media empire, is expected any day now. Then it ought to be only a matter of time before News Corp. and BSkyB settle on a price for the 61 percent stake in BSkyB that News Corp. does not already own.

Meanwhile, James Murdoch, who runs News Corp.’s operations outside the United States, is kicking the tires of Formula One auto racing. News Corp. and the Agnelli family of Italy, which indirectly controls the Ferrari race team, said last week that they were exploring “the possibility of creating a consortium with a view to formulating a long-term plan for the development of Formula One in the interests of the participants and the fans.”

Don’t be fooled by the circumlocution. News Corp.’s pursuit of BSkyB got off to a similarly slow start. So did its purchase of Dow Jones, the owner of The Wall Street Journal. The Murdochs, in a reverse of conventional merger-and-acquisition protocol, like to sort out regulatory issues and other potential sticking points, then strike deals.

What the statement means is that the Murdochs are prepared to spend a lot of money to put Formula One racing on BSkyB, as well as on other News Corp.-owned or affiliated pay-TV siblings like Sky Deutschland, Sky Italia and Star TV in Asia. Fox, a free network owned by News Corp., already shows some Formula One races in the United States.

Formula One is one of a shrinking number of high-profile sports events that has not yet made the leap from free to pay television. Bernie Ecclestone, chief executive of Formula One, has pledged to keep the races on free television wherever and whenever possible.

This is intended to protect sponsors by giving them the widest possible audiences. Sponsorship generates more than $700 million a year for the Formula One teams, according to analysts.

But sponsorship revenue fell sharply during the recession, when banks, which had replaced tobacco companies on many teams’ sponsorship rosters, pulled out of Formula One.

If Formula One shifted to pay TV in key markets, audience numbers would shrink, potentially limiting sponsors’ exposure.

“That would clearly be a massive concern if I were to advise a Formula One sponsor,” said Kevin Alavy, who analyzes television audiences at Initiative, a media buying agency.

But Mr. Ecclestone’s strategy of seeking the broadest reach may have restricted Formula One’s income from television rights deals, which bring in about $450 million annually, according to Formula Money, a report on the business of Formula One.

“There’s a limit to what free broadcasters can pay, because they aren’t able to earn it back through advertising,” said Tim Westcott, an analyst at Screen Digest. “Pay TV typically has much deeper pockets.”

Yet if News Corp. owned Formula One, television rights revenue might shrink, because News Corp. could presumably grant the rights free to its pay-TV subsidiaries (assuming regulators allowed this to happen). That could mean a further loss of income for Formula One teams, which currently get a share of the central organization’s revenue.

This helps explain why news of the Murdochs’ interest in Formula One has been met with alarm by a number of team owners, who are also wary of the involvement of the Agnelli holding company, Exor, because of its involvement with Ferrari. News Corp. presumably would have to compensate the teams for any revenue loss.

Negotiating this will take time, but the Murdochs have shown in recent acquisitions that they are willing to wait. The pursuit of Formula One may turn into another example of the tortoise beating the hare.

Article source: http://www.nytimes.com/2011/05/09/business/media/09cache.html?partner=rss&emc=rss