Shell Oil Geologist Dr. M. King Hubbert (1903 – 1989) coined the phrase ‘Peak Oil’ based on his observations about petroleum production rates for a given geographic area. Hubbert’s “Peak Theory” would be broadly stated as, “for a given geographic region, the rate of petroleum production tends to follow a bell-shaped curve.” Production begins, production grows, and then production slides.
Dr. Hubbert’s prediction in 1956 that the US would reach peak output in 1970 shocked the industry because of the financial and geopolitical implications. Since that time Peak Theory has been applied to many other markets, with an established framework for its adoption in natural resources and increasing adoption in other areas.
In this 2009 Slate Article, the author takes Hubbert’s Peak Theory and applies it to the rate of discovery of dinosaurs. At the time there were about 3,000 full type-species of dinosaur fossils known to man. Discovery rates were running at 14 per year, up from 6 per year between 1970 and 1990.
In this 2013 article relating a conversation between author Lynda Obst and Peter Chernin, former head of Fox Studios, Hubbert’s Peak Theory is never mentioned explicitly, but its presence is felt. As the two media experts attempt to make sense of the recent turmoil in Hollywood and throughout the movie industry – Chernin states clearly that the ‘New Abnormal’ in the industry is due to the collapse of DVD sales. The removal of DVD revenues, which accounted for 1/2 of the industry profits, has had a huge impact on the industry.
Chernin outlines several components of Peak Theory when applying it to an industry, which is helpful in understanding at how to look at Peak Theory outside of a natural resource setting;
Technology cause. DVDs have gone away because the industry shifted to digital delivery. Customers don’t buy DVDs anymore – they download movies. Even those that pay for movies now pay much less, “$3 or $4 video-on-demand (VOD) rentals instead of $15 DVD purchases.”
Peak recognition causes paralysis. The entertainment industry now realizes that DVDs aren’t coming back. This has led to their aggressive pursuit of international markets and changes in what kinds of movies they produce. However, it has also led to a lot of panic. Executives, according to Chernin:
“They said to me, ‘We don’t even know how to run a P&L right now.’” The look on his face expressed the sheer madness of that statement. “ ‘We don’t know what our P&L looks like because we don’t know what the DVD number is!’ The DVD number used to be half of the entire P&L!”
The good times are gone. Chernin discusses how individuals in the industry have to adapt more than just their business practice – their entire concept of self was based on a premise of continued unconstrained growth that was incorrect. Rather than pine for the ‘good old days’ adjusting to the new normal is crucial for making decisions and operating a business in a setting of persistent uncertainty.
Peak Television and Peak TV Advertising
Peak DVD resonates personally – it was at an entertainment industry event hosted by Shamrock Capital in 2006 that I first saw Peak Theory applied outside of natural resources. Then the implication was simple – there are only 10,080 minutes in a week during which an individual could watch a screen, and at the time television had nearly 100% of that time. YouTube was only a year old and it was clear that television, which had held a monopoly on leisure screen time, was going to have new challengers – Peak Television and Peak Advertising had arrived.
Update: June 19, 2014
In The Long Now Foundation‘s May 21 Podcast on reviving extinct animals, Stewart Brand referenced a recent article on Peak Farmland, based on a paper published originally by Jesse Ausubel. The author discusses in detail growth in farmland in India, China and the US, and how that growth has tapered as mankind has increased yields per acre for a given crop. Using their projections, the authors forecast that globally 150 – 400 million hectares could be moved away from farm production by 2060.
Reason.com turns out to be a good source on this topic – they also published an April 2010 post titled, “Peak Everything” in which they discuss resource constrains in both Lithium, Neodynium and even Phosphorous.