12 May 2022. Streaming | Carbon
The streaming boom is over. // The ‘fake’ carbon offsets market
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1: The end of the streaming boom
The streaming business has pulled up with a bump recently. Netflix’ shares, in particular took a mauling after it announced a loss of 200,000 subscribers in a quarterly statement in April. That wasn’t as bad as it seems, since it had lost its 700,000 Russian subscribers. On the other hand, it had forecast subscriber growth of 2.5 million, so it was a long way short of that.
And it’s also now forecast that it will lose 2 million subscribers in the current quarter—although that might be a deliberately pessimistic number that they’re confident they can beat, so as to manage investor expectations.
So it’s also possible that Netflix had mistaken subscriber growth during the pandemic as being a trend rather than a blip.
But it’s not the only one. Recent UK data suggests that all of the streaming services are suffering—and subscription services are particularly vulnerable when households are under financial pressure.
In his column in The Guardian, John Naughton connected it with a fundamental building block of the internet economy: attention.
Herbert Simon, a brilliant economist who won a Nobel prize in 1978,...presciently observed in 1971 that “in an information-rich world, the wealth of information means a dearth of something else: a scarcity of whatever it is that information consumes. What information consumes is rather obvious: it consumes the attention of its recipients. Hence a wealth of information creates a poverty of attention and a need to allocate that attention efficiently among the overabundance of information sources that might consume it.”
When you do the sums, Naughton wrote, we have about five hours a day of leisure. You can squeeze in a bit more through a little bit of multi-tasking, but competition for users’ time is at the heart of media and leisure businesses.
When it comes to attention, Netflix is in competition with less structured video services, as the Daily Maverick reported. This might be a deep shift in user behaviour, by the way:
Streaming services are not the only form of entertainment vying for consumers’ time. The latest Digital Media Trends survey from Deloitte, released in late March, revealed that Generation Z, those consumers ages 14 to 25, spend more time playing games than watching movies or television series at home, or even listening to music. The majority of Gen Z and Millennial consumers polled said they spend more time watching user-created videos like those on TikTok and YouTube than watching films or shows on a streaming service.
As it happens, Netflix is probably in a better position than some of its competitors. The UK data suggests that Netflix and Amazon Prime are the last to be cut: other services, like Disney+, had much higher churn rates.
All the same, companies that were once growth companies, that stop being growth companies, start behaving in ways that irritate their customers, even when those things make sense as a business model. Netflix has been talking about clamping down on shared passwords, and has run some trials to try to establish how extensive this is. (Even if it quite extensive, those customers borrowing passwords may not be that valuable—if they were, they would probably have their own subscriptions.)
And it’s talking about a tier which has a lower price, but with advertising. Tech analysts like this idea—the streaming market is slowing, the advertising market is still growing. But in a market like the USA, where other television services are nothing but advertising, it’s a point of differentiation.
But the underlying problem here is that the long digital surge is coming to an end—we’re in the last quarter of its 50-60 year S-curve, which started in 1971. (I’m using Carlota Perez’ model here). Tech is mostly a mature sector. The bits of growth that are potentially there, in places like Africa and Asia, aren’t among high wage customers. Investors seem to have noticed this at last. Netflix isn’t the only tech company to have taken a hammering from investors this year. The whole sector is down sharply.
And once it’s gone, it’s gone. It’s only a short step from being a high growth business on inflated stock market multiples that mean you can do more or less what you want to do, to being a mass market business with modest growth targets, more sceptical investors and more sensible share prices. Apparently Netflix has sent memos round reminding people to keep their costs under control. Welcome to the future.
2: The ‘fake’ carbon offsets market
Bloomberg has an interview with an American timberman whose company has made millions of dollars from carbon offsets who has become sceptical of the whole model.
Lyme Timber owns 1.5 million acres of American woodland (about the size of the state of Delaware), and makes money both from chopping down trees and from planting them for offsets. It’s made $53 million from these climate transactions in the last two years.
The theory behind carbon credits is that if you are causing emissions (from flying, say), you then offset it by buying an environmental ‘good’ that will absorb carbon. Trees have been a prime vehicle for this, even though environmentalists have long been doubtful.
But for the record, it works like this:
Each credit is supposed to represent 1 ton of carbon dioxide that’s been absorbed because of a change in behavior triggered by the promise of carbon payments. So a forest owner might scale back planned timber harvests or plant seedlings on otherwise barren lands. Buyers of the credits (usually large corporations) then subtract those carbon savings from their emissions ledgers, because, in theory, their payments caused this carbon reduction to happen.
But beneficiaries of this system have not really been among its critics. Which is why it’s interesting to hear Jim Hourdequin, Lyme Timber’s CEO, criticising the system:
The problem with carbon markets, he says, is that weak rules have created strong incentives for landowners to develop offset projects that don’t actually change the way forests are managed, and therefore do little to help the climate. Most forest carbon projects, including some from Lyme, fall into this category, Hourdequin says. “I believe in being intellectually honest about it,” he says.
The article has some examples of this, including a woodland in Tennessee where the company was paid for not harvesting any timber, and then paid for it again as an offset, despite not planting any new trees.
(Carbon credits from existing trees. Image: Michigan Department of Natural Resources.)
It’s not just the commercial forestry sector that is involved in these potentially fictitious offsets:
As Bloomberg Green previously reported, environmental groups such as the Nature Conservancy and the National Audubon Society have sold credits for protecting trees that weren’t in danger of being harvested, leading to misleading claims of emissions reductions by Walt Disney Co., JPMorgan Chase & Co., and other companies... “There’s a distinct possibility that a great deal of existing carbon offsets are effectively fake,” says Robert Mendelsohn, professor of forest policy and economics at Yale.
(The article comes with the usual boilerplate press statements by several of the organisations listed in the above paragraph. Apparently no rules were broken).
BloombergNEF, described in the article as a ‘research group’, has published research that says that this voluntary offsets market will likely destroy itself unless standards improve.
That seems to be part of Hourdequin’s motivation as well: despite the evident business risk of speaking out, he’d rather see a market that is delivering actual carbon benefits rather than pretending to do this:
“The spouting whale gets the harpoon,” Hourdequin acknowledges. But he says a transformation can’t happen without an honest self-appraisal. His hope is that the market will tighten its rules and force landowners to change their behavior so they can deliver true carbon savings. If this happens, he expects carbon prices to soar... We’re all going to have to design projects that are going to actually change practices and remove CO₂ from the air.”
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