Memory Lane - Netflix and the Energy Crisis
Netflix appears to believe it stands to lose from a closer alignment of consumption and price.
In 1976, as the U.S. furrowed its policy brows over a looming “energy crisis,” researchers from the University of North Carolina and West Virginia University were completing a three-year study designed to answer a simple question: If people knew more about how much electricity they were using, how would it affect their consumption?
With help from the Blackstone Valley Electric Co. in Pawtucket, R.I., researchers Steven Hayes and John Cone recruited 20 families to participate in the study, with another 20 customers pulled at random to provide a control group.
The feedback mechanism was simple. Participants received a form letter each month, a week after electrical meter readings were taken, telling them how much electricity they’d used, and how much it had cost them, compared with the same month a year ago. The families received the letters each month from February to June 1976. In advance, researchers collected their energy consumption data from 1973 to 1975 to use as a baseline.
The results: Following two years of rising consumption for each group (the randomly selected households and the willing participants alike), families involved in the feedback program consumed 4.7 percent less electricity during the program than they did during the comparable 1973 through 1975 periods. After the feedback program ended, their consumption increased by 11.3 percent more than in the baseline measurements. In contrast, consumers in the control group exhibited a negligible decrease of less than one-half of a percent during the feedback trial.
The authors called the results “encouraging,” considering the cost of providing the enhanced consumption feedback was little more than the cost of applying stamps to a letter.
Although the 1970s study was tiny, it went a long way toward convincing utility companies that improved consumer knowledge of energy expenditures can prompt behavioral changes. The study is still cited today in literature around metering and consumer behavior, a subject that’s getting a closer look as a new breed of “Smart Grid” devices emerges to help consumers monitor their energy consumption. A report last June by the American Council for an Energy Efficient Economy – citing the Hayes-Cone study, among others – concluded that “feedback is proving a critical first step in engaging and empowering consumers to thoughtfully manage their energy resources.”
The fact that smart metering and consumption monitoring are only now coming into vogue reflects several things: a decades-long contentedness among consumers with energy costs; a tolerable amount of strain, at least until recently, on the nation’s electrical grid; and, to the authors’ point, an absence of intelligence – particularly real-time intelligence – on just how much electricity people are using in the first place.
There’s symmetry here with what’s going on in broadband Internet consumption. In both fixed and wireless network environments, consumers generally have been oblivious about how many bits they’re summoning from the pipe. Even the simple sort of feedback loop that researchers Hayes and Cone concocted for their Rhode Island study is missing, or is overlooked by the majority of the nation’s 60 million or so broadband homes.
That’s changing. New usage-based billing approaches from Verizon Wireless and AT&T Wireless are introducing, or soon will introduce, millions of mobile data subscribers to the notion of caps and surcharges. On the wireline side, a similar reckoning is coming. Everybody knows this. The question that’s most intriguing: How will it affect or influence behavior?
The largest single purveyor of U.S. IP traffic, Netflix, appears to believe it stands to lose from a closer alignment of consumption and price, and consumer awareness of both. A July 7 Wall Street Journal column by Netflix general counsel David Hyman cried foul over the practice of billing by the bit, arguing that wireline distributors “see consumption-based billing as a convenient way to slow [competitors’] growth by making the use of online services more expensive.”
Hyman’s high-profile op-ed reflects the fact that Netflix has a big stake in the outcome of broadband pricing policy. If consumers come to construe the cost of Netflix and its ilk as not only the price of their content, but also the incremental access costs for its delivery, the value proposition may crumble.
Or will it? Maybe, as our test families in Pawtucket suggested 35 years ago, people will decide to cut down on consumption elsewhere. If some restraint with Google queries or Facebook posts buys somebody a few more bits for a Netflix sitcom, perhaps that’s a tradeoff an informed consumer can make. Without even spending a lot of energy thinking about it.