Tellynomics 40: F1 rights in the US - it's not really a Netflix question

The F1 rights in the US are up for renewal from 2026 and ESPN, the incumbent, has let the exclusive negotiating period (ENP) expire with no deal agreed. The rights are being openly marketed and speculation is rife that Netflix will step in, the logic being, roughly, “Drive to Survive, duh”.

The issue is more complex than this and, in the end, I think this is not really a Netflix question at all. Netflix will surely have a look, they will probably bid, but the key factor determining the outcome of this story is the thought process of the incumbent linear sports broadcasters. Do they defend their territory, or have they already given up and is this set to be the next chapter in them carelessly ceding their entire business, step by step, to the streamers?

Don’t read too much into the expiry of the ENP

The expiry of the ENP means little. I have argued before that, as common as they are, they are fairly pointless – they don’t constrain the seller in any material way, and they give little comfort to the buyer.

ESPN has been paying $90m pa and, even if they had offered a significant increase on this sum, why would F1 not test the market? The F1 profile has increased in recent years, thanks in part to Drive to Survive (DtS), but also because of the move to three US races and other efforts by Liberty Media as owners. In this context F1 would be derelict in its duty if it simply accepted ESPN’s offer and did not test the market.

The expiry of the ENP also does not mean that ESPN is not interested and won’t come back into the reckoning. If it’s clear that the seller has to test the market, there is little incentive to put your best number down during the ENP. All you are doing is providing a clear target for others to beat. Better to keep your powder dry for the real battle to come.

Others have pointed to ESPN saying it will be disciplined, that it is “ready to walk away if the asking price is too high”. Read nothing into this, it’s a statement of the obvious and is the standard reassurance offered to shareholders who are terrified of undisciplined bidding for sports rights.

And while on the subject of stating the obvious, SportsPro reports that F1 wants “up to $180m a year”. Of course they do, although including “up to” in the statement makes it sound a little weak – as if $180m is clearly the absolute cap and something less than that would be OK too.

Of course Netflix will be interested

The trade press is full of rumours that Netflix is considering a bid but read nothing into this. Of course Netflix is interested, it’s their job. Even if they were not, or were keeping it quiet, there should at least be a rumour circulating – the folk at F1 should be fired if there was not one. What about the merits?

• The rights are eminently affordable for Netflix. Even with a significant uplift on the current ESPN deal, the rights for a season of 24 races might yet cost less than a single Xmas Day NFL game. We are still a long way short of a $1-2 billion pitched battle for a full pack of NFL or NBA games
• There is obvious synergy with the DtS audience on Netflix. That said, given that Netflix already has this audience, this would be about serving that audience, providing support for pricing and helping with retention. All good stuff, although the job could equally be performed by the next season of DtS. And it is perhaps not quite as interesting as sports rights that lure pockets of entirely new subscribers to the platform, as was true for the Xmas NFL games
• Netflix has indicated that they can be pragmatic and engage with sports rights for a single territory if global rights are not available. (By contrast, Apple have tended to be more dogmatic (hence the MLS deal), although even they are being touted as a possible bidder here)
• Technology is not a problem, having passed the test of streaming live NFL games on Xmas day. The race production side also presents no barrier because Netflix can take the central Sky feed, as do many others around the world
• The flipside, however, is that Sky broadcasts the races ad-free from “lights out to chequered flag”. In part this reflects a UK fans backlash when the rights went from BBC to ITV and the latter introduced ad breaks at random moments during the race, inevitably missing key moments. ESPN has lived with this very un-American lack of natural breaks (much like for soccer) but if the Netflix future thinking is increasingly about growing the ad tier and ad revenue as the next major revenue push, this is a partial negative.

Pros and cons therefore, but, in the round, they will surely have a good look, and they will probably bid. But they will be disciplined, recalling Netflix explaining that they are not anti-sport, they are just pro-profit. This sensible mantra holds here, as this is not an existential moment for Netflix, with no pressing need to push the financial envelope. F1 is an interesting opportunity, but it is not a unique key to unlocking otherwise unreachable pockets of consumers. It sits alongside many other options for content spend and has to measure up.

The real question is whether the linear broadcasters will defend their turf

With Netflix likely to bid with discipline, the factor that will really decide the future US home for F1 is whether any of the traditional linear players – Disney (via ESPN), NBC, WBD (via TNT), Fox (via Fox Sports) – decides to defend. The case for doing so rests on the tactics around the ongoing cord-cutting dilemma.

Imagine the following thought process:

• cord-cutting is a major problem, driven mainly (so far) by strong entertainment bundles offered by the streamers;
• but the residual base of traditional cable and satellite bundle customers remain highly profitable;
• and there might something worth preserving here if we work to defend what’s left;
• live premium sport is the major underpinning of this residual cable and satellite base, the key genre that is not currently well served by the streaming world;
• so we should defend key sports rights from drifting to the streamers, because we don’t want sports fans to get the idea that their sports needs can also be met by the streamers

Of course, Netflix has dabbled in sport, even live sport. But so far this has been limited to one-off stunts, more like acquisition marketing, and they have not crossed the line into taking out a whole season or a whole sport. If they did, it would be a serious line for Netflix to cross.

If sports rights – season-long deals, as opposed to occasional stunts – start drifting to Netflix and others, this could be last nail in the cord-cutting coffin. This means that each of the linear sports incumbents has some incentive to secure F1 rights and keep them away from Netflix, the same logic that means it was right for them to step away from the self-harm project that was Venu for $43. They have enough money to outbid a rational, disciplined Netflix and, unlike Netflix, they are confronting an existential threat.

The challenge is that, individually, their interests would be equally served if one of the others would step up and buy the rights. They don’t need to be the licensee themselves, they just need the rights to stay within the cable and satellite bundles and away from Netflix. Will any of them step forward and volunteer to take one for the team? Or is there some role for a conversation, perhaps a joint bid?

If not, then perhaps the line of thought above is wrong. Perhaps they don’t think there is much left to defend, or there is no way to do so, or they have given up trying? Or are they not paying attention, not seeing this as a crucial line to defend? Or perhaps they just don’t think F1 moves the dial either way. Time will tell.