Thoughts about Apple and F1

The suggestion last week that Apple may be discussing the acquisition of the Formula One group has led to a lot of interest and a lot of opinion. Traditional technology people argue it would never happen because it’s not the way Apple works. The company buys small clever companies and use the technology under the Apple brand. They don’t need the kind of advertising that F1 provides. So why would they buy it? The answer, it seems, is not to do with advertising, but rather with sales. Apple has built its empire on the iPhone and the iPad. The company has sold 800 million iPhones and, as a result, is now the biggest company in the world. But sales are slowing gradually and competition is increasing and Apple is following the Steve Jobs philosophy and looking for new ideas which reinvent the way we live.

The Apple car is definitely in the pipeline, but probably not until 2020, and there is still much to be done. At the same time, AppleTV, which was launched at the same time as the iPhone, has not enjoyed anything like the same success, with only around 25 million sales. However, the global TV markets are changing now and “over the top” services, delivered by the Internet, have opened up a lot of new possibilities in the TV world. Companies are rushing into this market because the idea of direct-to-consumer a la carte television is much more attractive to the public than expensive bundles of content and premium priced payTV.

PayTV is not really working for F1 because although revenues are creeping up, numbers of viewers are dropping and that is not good for the sport.

Eddy Cue, the Senior Vice President of Apple, says that there are “huge opportunities” to make it easier for customers to consume TV content. Apple does not want to get into the content business, unless it is tied to the company’s products and prefers to focus on what it knows how to do, rather than diversifying into businesses it knows nothing about.

But that does not mean that owning content is a bad thing for Apple, if that content involves little effort and massive payback. CVC Capital Partners knows nothing about F1, but has made a fortune from it. Apple has plenty of money for investment and $8 billion for the Formula One group would not be a huge deal. The sport currently generates $900 million a year for its owners, although most of this now goes to debt repayment because CVC has already taken the money. Switching the sport to AppleTV could generate big revenues. Heineken recently entered F1 believing the sport will bring it 200 million new customers. OK, it’s beer, but if Apple saw similar potential, the impact could be dramatic. AppleTVs cost $200 each, but selling 200 million of them could generate   $40 billion. With such vast numbers, one could imagine Apple being willing to perhaps even consider broadcasting the sport free-to-air, and generating money only from the sale of the devices. To put that into perspective, if only 10 percent of the world’s F1 viewers bought an AppleTV it would generate $8 billion, which would pay for the purchase of the company. Apple would then also be able to generate revenues from the new customers with its other services. The company would also be able to use the connection with the sport/technology of F1 to alert more people to the company’s long-term plans in the automotive world.

None of this is more than speculation, but one can see a solid business case for making such a move.

Having said that, there are still other bidders in the market, notably the consortium led by US real estate developer Steven Ross. I hear too that John Malone of Liberty Media is back in the ring, although much will depend on what CVC and/or its chairman Donald Mackenzie wants to do. He will retire next year and may see a role in F1 as being a good idea, as he seems to have developed a taste for the F1 lifestyle, although few in the sport have taken to him.

Right now, it is unclear whether an Apple-F1 deal is a serious possibility, but it is clear that discussions have been taking place. Logic is often the wrong way to look at F1 because decisions tend to be driven by the enthusiasm of the decision-makers, who then argue for F1 within the companies involved. In this respect, Apple should be watched because Cue is a petrolhead – not to mention a member of the board of Ferrari SpA.