the times | Thursday October 15 2020 1GM 37

CommentBusiness

Johnson’s promise on wind power

must be more than just hot air

Britain is the world

leader in offshore wind

I

f cinema chains were to go the

way of Blockbuster, would we

really mourn their passing?

Sure, the silver screen occupies

a hallowed place in popular

imagination — if mothballed movie

theatres shut their doors for good,

we, their audience, would suffer

pangs of grief — but history

suggests we would quickly learn to

love watching the latest blockbuster

from the comfort of our sofas. The

march of progress won’t spare the

independent arthouse.

To many eyes, this would seem a

pitiless way to think about a pillar of

our cultural life. Nevertheless, it is a

view that’s now prevalent in the

entertainment industry — and on

Wall Street.

Last week one of Disney’s largest

shareholders urged the studio to axe

its $3 billion-a-year dividend and use

the savings to escalate its fight with

Netflix and Amazon. Daniel Loeb, a

billionaire hedge fund manager, said

that the studio would get more bang

for its buck by increasing its

investment in original movies and

series and feeding them directly on

to its Disney+ app. The world was

moving away from the cable TV

channels and box-office takings and

towards subscriptions, he said, and

Disney need not worry about

alienating cinemagoers. They would

soon lose their nostalgia for the big

screen, just as consumers in the

early 20th century forgot about

“horse-drawn carriages” as soon as

they got behind the wheel of a

Model T.

It’s rare for a hedge fund tycoon to

forgo an immediate gain, even rarer

still for a company to capitulate so

quickly to the demands of an activist

like Mr Loeb. On Monday, Disney

unveiled an internal reshuffle aimed

at prioritising its streaming video

services, which include Hulu and

ESPN+, the sports service.

Hollywood’s best-known film studio

is to create a new division to

distribute its movies and shows

across its cable channels, cinema

partners and streaming apps. As

Bob Chapek, its new boss,

explained, Disney needs to serve

consumers on the platforms of their

choosing. In practice, that means

bypassing legacy media and putting

content directly on to Disney+ first.

The big American entertainment

companies have been moving in this

direction for several years in

response to the rise of Netflix and

Amazon and the decline in cable TV.

In an attempt to regain control

over distribution, studios have

removed their content from the

streaming upstarts and have

launched copycat apps.

The pandemic has given greater

urgency to this process. Many

cinema owners are caught in a

death spiral, with studios delaying

the release of marquee movies such

as No Time to Die, Daniel Craig’s

last outing as James Bond, until

audiences return en masse.

Cineworld has closed almost all of

its screens globally, while AMC, a

big American chain, has warned

that it could run out of cash by

December.

Economic lockdowns have

inflicted deep wounds on the Disney

empire, which includes theme parks,

cruise ships and, of course, the

blockbuster film division that

earned $13 billion at the box office

last year. The one bright spot has

been Disney+, which has drawn in

more than 60 million subscribers

since it as launched less than a year

ago.

However, in the streaming stakes

Disney’s version lags Netflix, whose

customer base has swollen to nearly

200 million. Although Netflix

continues to bleed cash, investors

rate its recurring revenues more

highly than Disney’s more volatile

sales, which are tied to the success

of franchises such as Star Wars and

The Avengers.

Since the start of the year,

Netflix’s market value has climbed

70 per cent to $244 billion, while

Disney’s has fallen by 12 per cent to

$230 billion. Cinema chains are

facing a bleak future and if Disney is

serious about catching Netflix, it

will have to raise its game on

streaming.

Simon Nixon

Simon Duke

The EU is betting heavily on

hydrogen, and rightly so, since it is by

far the most plausible technology to

decarbonise some of the most

polluting sectors, such as heavy

industry, haulage and heating. Yet

“green” hydrogen requires an

abundant supply of zero carbon

energy to fuel electrolysis plants. The

EU can do this because its internal

market can draw on wind energy

from the north and solar from the

south. The “Saudi Arabia of wind”

could have an important role to play,

but only as part of a wider European

hydrogen economy.

What’s more, the case for a

European approach will become even

more compelling if the EU proceeds

with plans for a carbon border tax.

The European Commission has

proposed this as a way to ensure that

the same price is paid for carbon

emissions on imported goods as on

domestic production. After all, there

is no point in driving up the domestic

price of carbon if it simply leads to

the most polluting activities being

carried out offshore. That will simply

undermine European companies

while doing nothing to address

climate change. Such a tax might

make sense for Britain, too, but it

could never introduce one on its own,

not least because of the resistance it

would face from powerful trading

partners, such as the United States.

But, as Policy Exchange notes, it

could help to deliver net zero as part

of a pan-European initiative.

Brexit uncertainty has already cost

Britain an entire year that could and

should have been used to get on with

its strategy for achieving net zero.

And with talks with the EU going to

the wire, it is hard to believe that this

uncertainty will be cleared up by any

imminent white paper. This inevitably

has economic consequences since, in

the absence of clarity, infrastructure

investments that could help to deliver

the post-Covid recovery are put on

hold. It may also have wider

geopolitical consequences. In little

more than a year’s time, Britain will

host the COP-26 summit, when world

leaders will try to agree on binding

commitments to tackle climate

change. That will be an immense test

of Mr Johnson’s persuasive powers.

He would do better

to lead by example

rather than rely on

more windy

rhetoric.

Let us do Boris

Johnson the

courtesy of taking

his aspiration to

turn Britain into the

“Saudi Arabia of wind” seriously. The

prime minister may have been

indulging in some of his customary

hyperbole in the speech he gave to

the Conservative Party virtual

conference last week. After all, Saudi

Arabia has 16 per cent of the world’s

proven oil reserves and is the world’s

biggest exporter of oil products —

whereas Britain on a good day

currently gets about half its domestic

electricity from wind. Nonetheless,

Mr Johnson is right to be ambitious.

After all, Britain is a windy place, it is

already the world leader in offshore

wind and it has a legally binding

target of net zero carbon emissions by

2050, which will be impossible to hit

without thousands more turbines.

Of course, what was missing from

Mr Johnson’s speech was any detail

on how his ambition might be turned

into reality. A white paper on how to

achieve net zero was promised for

September last year, but has been

postponed four times. It is now

expected before Christmas. On the

other hand, the lack of a coherent

plan is hardly surprising. It is not just

that the question of how to

decarbonise Britain is fiendishly

complex and inevitably will impose

heavy costs that must be borne by

both businesses and consumers. It is

because, like so many other crucial

decisions affecting the economy, the

plan is held up by Brexit.

The reality is that there is no

rational carbon reduction strategy

that doesn’t require working closely

with the European Union. If Britain

does manage to turn itself into the

Saudi Arabia of wind, it will need

somewhere to export the

surplus energy when the

wind is blowing strongly.

More importantly, it

will need some way to

import clean energy

when the wind

doesn’t blow at all.

Indeed, the more

reliant Britain

becomes on wind,

not only for

household electricity,

which Mr Johnson

hopes will become entirely wind-

powered by 2030, but also to fuel a

rapidly growing fleet of electric

vehicles, the greater this problem of

intermittency will become.

As things stand, Britain can balance

its needs by importing from and

exporting energy to the EU via

interconnectors located around the

coast. But Britain is leaving the EU’s

single energy market on December 31

and, without a new trade deal, it will

have to pay more for worse access to

EU networks. That’s because Britain

no longer will be part of the EU’s

emissions trading scheme (ETS),

which sets a price for carbon. Nor will

it any longer be subject to EU state

aid rules. The EU fears that, without a

level playing field, Britain could seek

a competitive advantage by setting a

lower price for carbon or by providing

extravagant subsidies for green

energy.

The government, though, has yet to

provide any solutions to these two

obstacles to a long-term energy deal

with the EU. Initially, it indicated that

it would create a British ETS to set a

price for carbon, but it now appears to

have left that too late. Besides, a UK-

only ETS would be too volatile to

provide a basis for long-term

investment.

Now the government is instead

consulting on a carbon emissions tax.

That is a much blunter tool and risks

becoming politicised if the level is set

each year in the budget. A carbon tax

based on the present EU price of

carbon would be about £27 per tonne.

But if Britain is to hit net zero

emissions, it is likely to have to rise to

£160 per tonne by 2050, according to

a recent report by the Policy

Exchange think tank. Meanwhile, the

energy sector, along with so many

other industries in Britain, awaits

details of the government’s

new post-Brexit state

aid regime.

Nonetheless,

the need for an

ambitious

energy deal

with the EU

will only grow

over time.

That is

particularly

true if the

government is

serious about

hydrogen, as Mr

Johnson claims to be.

‘‘

’’

Simon Duke is Technology Business

Editor of The Times

Disney has to look at the

bigger picture, in spite of

our nostalgia for cinemas

Disney annual revenues*

* Year to end September, 2019

Source: Disney

$25bn

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