Analysis: Liberty Media faces its toughest challenge

Liberty Media faces a huge mountain to climb in the next weeks if it wants to stay persistent and intends to put through its proposals regarding the future business and technical image and model of Formula 1.

Formula 1 experienced on its biggest changes at the end of 2016 when the former Commercial Rights Holder CVC Capitals announced its will to sell out its shares in Formula One to the American company Liberty Media. The acquisition process was completed in several steps and was finalized at the beginning of 2017.

The buy-out of the shares saw the end of the decades-long reign of F1’s supremo Bernie Ecclestone. On 23, January it was announced that the Briton would be replaced by the trio of Chasey Carey, Ross Brawn and Sean Bratches who will take over the duties of Ecclestone.

Right after the take-over, the new commercial boss of F1, Sean Bratches announced the four key areas which Liberty Media thinks need attending to. The work on the brand, the digital presence of the sport, the democracy and the race experience formed a four-point plan which should help the sport.

Since the acquisition, Liberty Media has been carrying out a thorough inspection how it could make the sport even more exciting and enticing. One of the key objectives and aim was the improvement of fans’ engagement in Formula 1. The company has had many ideas and managed to introduce new features which were met with success. The fan zone, the F1 Experience package including the two-seater runs, the Formula 1 Simulator Game competition, the new features in the paddock, the increased volume of video contents, more concerts during race weekends, the relaxing of social media rules, the bigger car numbers, the allowance of local racing series to the Grand Prix weekend (Australian GP), the opening up of the Strategy Group, the relaxing of paddock passes, the fan festivals were all welcome by the fans.

It was also announced recently that Liberty Media has entered talks with streaming media company Netflix for a collaboration in 2018 and beyond. The American company was founded by Reed Hastings in 1997. It started off back then as DVD sales and rental business model and it has grown into a hugely popular video-on-demand service and content producer.

As Formula 1 expands its reach into the digital arena, a Netflix deal could eventually revolutionise how F1 is broadcast and distributed.

“What we are trying to do is we are trying to create content that lives outside the grand prix weekends, which has been almost non-existent from digital or linear standpoint. Our objective is to engage with the Netflix of the world, the Amazons of the world, and create content that fans can consume, which is compelling and tells different stories about what is going on in F1,” says F1 commercial boss Sean Bratches.

Liberty, which bought the Formula-1 shares for £3.7bn in January, has yet to make any major changes to the sport.

Force India team boss Bob Fernley said in September “We’re nine months down the road, you’d have thought we’d have been firming something up a bit more now...at least a skeleton of where we’re going but we’re getting nothing at all.”

Haas F1 team owner Gene Haas added “I think everything’s positive but I think now we want to see some concrete plans.”

The company was measured with its plans regarding the business and technical model of Formula 1. This approach was not by accident as the way how the Commercial Rights Holder treats the main protagonists of the sport – the car manufacturer involved in the sport, the constructors and major sponsors – is arguably the most prickly question.

Liberty Media announced last week that it intends to change the current engine regulation and laid a new proposal on the table in a meeting with the current and potential engine manufacturers.

Mercedes’ Toto Wolff was the first person to express that his team is opposed to the Liberty vision which will be discussed at a series of follow-up meetings in the coming weeks. The Austrian business man thinks the new engine formula which is not that different at first look would be financially rather demanding for the engine manufacturers.

“The concept sounds similar to what we have now. But it means a completely new development that will mean we are working on two engines at the same time between 2018 and 2020. It’s a vision rather than a regulation. And it’s their vision rather than the manufacturers’

"It is important to define all together what formula one should be in 2021, not just from the point of view of the engine. What we have is the starting point of a dialogue rather than something we have agreed to. Certain things are right, but it’s not quite there," Wolff added.

Renault F1 managing director Cyril Abiteboul thinks Formula 1 cannot go he route of other series like NASCAR and introduce standard elements as the DNA of the sport dictates that it is an individual competition for different constructors.

"On standardisation and prescriptive regulations, some of it can be good. But we know the devil will be in the detail and it does create some concern about fundamentally what does being an engine manufacturer mean?

"We've been in F1 for 40 years, in particular being an engine manufacturer, and that [the proposal] is for us creating some question marks. We not saying that we don't want to discuss it – but we can't accept to be presented that set of regulations as a fait accompli,” concluded the Frenchman.

Ferrari, which has already been critical of the new proposals regarding the way the revenue is shared among the teams, has upped the ante in manufacturers’ opposition to Liberty Media’s.
FIAT-Chrysler and Ferrari President Sergio Marchionne said in a conference call with analysts on Thursday to discuss Ferrari's latest financial results that the fabled Italian carmaker is prepared to walk away from grand prix racing after 2020.

Marchionne said: "Liberty has got a couple of good intentions in all of this, one of which is to reduce the cost of execution for the team, which I think is good.

"There are a couple of things we don't necessarily agree with. One of which is the fact that somehow powertrain uniqueness is not going to be one of the drivers of distinctiveness of the participants' line-up. I would not countenance this going forward.”

"What I do know is that it [F1] has been part of our DNA since the day we were born. It's not as though we can define ourselves differently. But if we change the sandbox to the point where it becomes an unrecognisable sandbox, I don't want to play any more. I don't want to play NASCAR globally, I just don't," he added.

It is worth noting that the agreement of Ferrari, Mercedes and Renault in that matters indicates that the current engine formula is relevant and helpful for the engine manufacturer in their road car business and that the engine convergence is actually going forward, otherwise Ferrari and Renault would not agree with the dominant Mercedes. The convergence is also in the interest of the German carmaker even it utter dominance shrink day by day because it means their rivals won’t argue for a change in the engine rules which would cost a great deal for Mercedes and would therefore require enormous investment which isn’t necessary beneficial for the road car production at all.

Liberty Media, the FIA and the representatives of the current F1 teams will assemble again for another meeting on Tuesday where the cost-cutting measures, the future look of the sport and probably the new engine formula will be on the agenda.

The revenue sharing and the cost-saving measurements are believed to be the next controversial points to discuss. Liberty Media may uphold smaller teams which is necessary for their long presence in the sport, but on the other hand, bigger teams won’t give up their front-runner places which they can more or less guarantee with their usual huge investment.

The American company has now to prove that it has the power, the strength to put its will through.