See inside Ford’s new tech campus, a century-old Detroit train station restored for $950 million

Ford Motor is turning an abandoned train station used for decades as an infamous symbol of Detroit’s downfall and blight into a new technology campus for the automaker and mixed-use property for the city.

Michael Wayland / CNBC

DETROIT – Ford’s latest project out of the Motor City is the restoration and reopening of an abandoned train station, for decades a symbol of Detroit’s downfall and now the automaker’s new technology campus.

The $950 million project encompasses the 18-story former train station called Michigan Central Station – once the state’s marquee transit building – an adjacent 270,000-square-foot building and other, supporting facilities.

The 30-acre “Michigan Central” campus and station was initially announced in 2018 and slated to open by 2022. However, the coronavirus pandemic and the extensive work needed to renovate the station delayed its reopening. Ford is celebrating the restoration of the century-old train station on Thursday.

Following the event Thursday, the ground floor of the train station building will be open to the public through June 16, before the first commercial occupants begin moving in this fall.

The new campus comes at a precarious time for Ford investors as the company continues to restructure its business. It also comes as many companies attempt to downsize office space and fill their current buildings with employees who grew accustomed to working from home during the pandemic.

A photo of Michigan Central’s main concourse prior to its renovation sits in the newly restored room toward the back of the building.

Michael Wayland / CNBC

Specifically in Detroit, a stark juxtaposition has emerged: In April, Ford’s crosstown rival General Motors announced it would be downsizing from its towering Renaissance Center headquarters along the city’s riverfront to two floors in a nearby building that’s under construction.

Yet Ford Chair Bill Ford said he believes the investment made in the historic train station is a crucial part of the automaker’s future, including in aspects of talent acquisition and retention.

“We’re in a war for talent, our industry and our company,” Ford, who spearheaded the project, told CNBC. “And you need to give talent two things: You need to give them, first, really interesting problems to solve, and then you have to give them a great place to work. With Michigan Central, we checked both those boxes.”

Bill Ford decided to purchase the dilapidated building after years of trips to Silicon Valley for his Fontinalis venture capital firm and during his tenure as a member of the eBay board of directors. He’s long been outspoken about the need for the traditional automotive industry to compete with newer tech companies in both product and talent acquisition.

Ford Motor released this image of Chair Bill Ford, great-grandson of company founder Henry Ford, when the automaker announced it would be purchasing Michigan Central Station in June 2018.

Ford

Ford said attracting top talent to Detroit is “getting better” but noted that “it’s a tall order” to convince workers from California or the East Coast to relocate to Detroit and work for Ford.

“If you can show them a place like Michigan Central, not just in its beauty, which alone is incredible, but then talk about the kind of things that will be going on there, then it becomes, I think, a really valuable resource for the company going forward,” he said.

Train station campus

The Michigan Central campus is located southwest of Detroit’s main business district in a trendy neighborhood known as Corktown. It’s about 10 miles down the road from Ford’s world headquarters in Dearborn, Michigan.

The Michigan Central campus in total spans 1.2 million square feet of commercial space, including retail, restaurants and hospitality. It was awarded $300 million in state, local and historic rehabilitation tax incentives, according to officials.

The restored grand waiting room inside Ford’s Michigan Central Station in Detroit.

Michael Wayland / CNBC

Ford officials went to great lengths to restore the station to its original glory after decades of vandalism and decay. The project involved 3D-scanning the rooms, matching materials and referencing historical photos to recreate parts of the building.

This was especially true for the first floor of the train station, where a grand room features massive windows, an arcade and a large concourse full of marble and terrazzo flooring, Mankato stone and other unique materials.

Architects and designers opted to leave some graffiti on walls to represent the station’s dormant years after closing in 1988.

As one measure of Ford’s determination, officials traced the facility’s original limestone to a quarry in Indiana only to find out it had since closed. Michigan Central worked with the owners to reopen the quarry.

Some graffiti from when Michigan Central sat dormant for more than 30 years was purposely preserved to represent that part of the station’s history.

Michael Wayland / CNBC

“It has been painstakingly and lovingly restored to, wherever possible, to its original condition,” said Josh Sirefman, Michigan Central CEO, during a tour of the project. “Before we start activating it with lots of things, it’s probably in its most pristine condition.”

Amid national commercial real estate challenges, about two-thirds of the tower has scheduled tenants or planned use cases, officials said. That includes an unnamed restaurant and hotel, pending rezoning approval.

The adjacent building, known as the Detroit Public Schools Book Depository, already houses more than 600 employees from nearly 100 startup companies.

“It really is the beginning of the ecosystem that I want to create,” Bill Ford said. “There’s going to be a lot of experimentation taking place down there.”

Ford plans to house at least 2,500 employees in the building, primarily members of the company’s electric vehicle and connected services teams. Roughly 1,000 of those employees are expected to move into the station’s tower by the end of this year, Ford said.

Other building occupants could include local universities, other businesses and a restaurant. However, officials declined to release a full list of expected tenants. Google, a founding partner of the project, runs its “Code Next” program, which teaches students how to code, from the Book Depository building.

Ford said he expects future automaker employees to be able to collaborate with other occupants of the station’s tower as well as the startups occupying the Book Depository building.  

A photo of Michigan Central’s arcade prior to its renovation sits in the newly restored room toward the east end of the building.

Michael Wayland / CNBC

‘Legacy project’

Resurrecting the train station and surrounding campus is the latest project Bill Ford, a great-grandson of company founder Henry Ford, has undertaken in the Motor City.

He was instrumental in moving the Ford family-owned Detroit Lions from suburban Pontiac to a new stadium, appropriately named Ford Field, in downtown Detroit in 2002. He also was part of the team that brought the Super Bowl to the city in 2006.

And he redeveloped the company’s River Rouge Assembly plant into a “green” production facility amid calls to close it. It’s now a tourist destination for the production of the Ford F-150 full-size pickup.

Ford, who served as CEO of the automaker from 2001 to 2006, described Michigan Central as a continuation of such projects. He called the effort a “legacy project” for himself as well as for those who have been able to work on it.

“I’m very proud of both of those [prior projects], but I think this is going to kind of put an exclamation point on it because this will be a wonderful place to work but it will also be a wonderful place for the public to come,” Ford said.

The renovated “reading room” off of the grand waiting room at Ford’s Michigan Central Station in Detroit.

Michael Waylans / CNBC

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AI could drive a natural gas boom as power companies face surging electricity demand

A chimney from the Linden Cogeneration Plant is seen in Linden New Jersey April 22, 2022. 

Kena Betancur | View Press | Corbis News | Getty Images

Natural gas producers are planning for a significant spike in demand over the next decade, as artificial intelligence drives a surge in electricity consumption that renewables may struggle to meet alone.

After a decade of flat power growth in the U.S., electricity demand is forecast to grow as much as 20% by 2030, according to a Wells Fargo analysis published in April. Power companies are moving to quickly secure energy as the rise of AI coincides with the expansion of domestic semiconductor and battery manufacturing as well as the electrification of the nation’s vehicle fleet.

AI data centers alone are expected to add about 323 terawatt hours of electricity demand in the U.S. by 2030, according to Wells Fargo. The forecast power demand from AI alone is seven times greater than New York City’s current annual electricity consumption of 48 terawatt hours. Goldman Sachs projects that data centers will represent 8% of total U.S. electricity consumption by the end of the decade.

The surge in power demand poses a challenge for Amazon, Google, Microsoft and Meta. The tech companies have committed to powering their data centers with renewables to slash carbon emissions. But solar and wind alone may be inadequate to meet the electricity load because they are dependent on variable weather, according to an April note from consulting firm Rystad Energy.

“Economic growth, electrification, accelerating data center expansion are driving the most significant demand growth in our company’s history and they show no signs of abating,”

Robert Blue

Dominion Energy, Chief Executive Officer

Surging electricity loads will require an energy source that can jump into the breach and meet spiking demand during conditions when renewables are not generating enough power, according to Rystad. The natural gas industry is betting gas will serve as the preferred choice.

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Natural gas prices year to date

“This type of need demonstrates that the emphasis on renewables as the only source of power is fatally flawed in terms of meeting the real demands of the market,” Richard Kinder, executive chairman of pipeline operator Kinder Morgan, told analysts during the company’s first-quarter earnings in April.

“The primary use of these data centers is big tech and I believe they’re beginning to recognize the role that natural gas and nuclear must play,” Kinder said during the call. Kinder Morgan is the largest natural gas pipeline operator in the U.S. with 40% market share.

Natural gas is expected to supply 60% of the power demand growth from AI and data centers, while renewables will provide the remaining 40%, according to Goldman Sachs’ report published in April.

Gas demand could increase by 10 billion cubic feet per day by 2030, according to Wells Fargo. This would represent a 28% increase over the 35 bcf/d that is currently consumed for electricity generation in the U.S, and a 10% increase over the nation’s total gas consumption of 100 bcf/d.

“That’s why people are getting more bullish on gas,” said Roger Read, an equity analyst and one of the authors of the Wells Fargo analysis, in an interview. “Those are some pretty high growth rates for a commodity.”

The demand forecasts, however, vary as analysts are just starting to piece together what data centers might mean for natural gas. Goldman expects a 3.3 bcf/d increase in gas demand, while Houston-based investment bank Tudor, Pickering, Holt & Co. sees a base case of 2.7 bcf/d and a high case of 8.5 bcf/d.

Powering the Southeast boom

Power companies will need energy that is reliable, affordable and can be deployed quickly to meet rising electricity demand, said Toby Rice, CEO of EQT Corp., the largest natural gas producer in the U.S.

“Speed to market matters,” Rice told CNBC’s “Money Movers” in late April. “This is going to be another differentiator for EQT and natural gas to take a very large amount of this market share.”

Natural gas market looks oversupplied right now, says EQT CEO Toby Rice

EQT is positioned to become a “key facilitator of the data center build-out” in the Southeast, Rice told analysts on the company’s earnings call in April.

The Southeast is the hottest data center market in the world with Northern Virginia in the thick of the boom, hosting more data centers than the next five largest markets in the U.S. combined. Some 70% of the world’s internet traffic passes through the region daily.

The power company Dominion Energy forecasts that demand from data centers in Northern Virginia will more than double from 3.3 gigawatts in 2023 to 7 gigawatts in 2030.

Further south, Georgia Power sees retail electricity sales growing 9% through 2028 with 80% of the demand coming from data centers, said Christopher Womack, CEO of Georgia Power’s parent Southern Company, during the utility’s fourt-quarter earnings call in February.

“Economic growth, electrification, accelerating data center expansion are driving the most significant demand growth in our company’s history and they show no signs of abating,” Dominion CEO Robert Blue said during the company’s March investor meeting.

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EQT shares over the past year.

The surging power demand in the Southeast lies at the doorstep of EQT’s asset base in the Appalachian Basin, Rice said during the earnings call. Coal plant retirements and data centers could result in 6 bcf/d of new natural gas demand in EQT’s backyard by 2030, the CEO said.

EQT recently purchased the owner of the Mountain Valley Pipeline, which connects prolific natural gas reserves that EQT is operating and developing in the Appalachian Basin to southern Virginia. EQT is the only producer that can access the growing data center market through the pipeline, said Jeremy Knop, the company’s chief financial officer.

“I think we are very uniquely positioned in that sense,” Knop said during the call. Rice said the Southeast will become an even more attractive gas market than the Gulf Coast later in the decade. EQT is planning to expand capacity on the Mountain Valley Pipeline from 2 bcf/d to 2.5 bcf/d. The pipeline is expected to become operational in June.

The level of electricity demand could help lift natural gas prices out of the doldrums.

Prices plunged as much more than 30% in the first quarter of 2024 on strong production, lower demand due to a mild winter and historic inventory levels in the U.S. By 2030, prices could average $3.50 per thousand cubic feet, a 46% increase over the 2024 average price of $2.39, according to Wells Fargo.

Grid reliability worries

Dominion laid out scenarios in its 2023 resource plan that would add anywhere from 0.9 to 9.3 gigawatts of new natural gas capacity over the next 25 years. The power company said gas turbines will be critical to fill gaps when production drops from renewable resources such as solar. The turbines would be dual use and able to take clean hydrogen at some point.

“We’re building a lot of renewables, which all of our customers are looking for, but we need to make sure that we can operate the system reliably,” Blue told analysts during Dominion’s earnings call Thursday.

Renewables will play a major role in meeting the demand but they face challenges that make gas look attractive through at least 2030, Read, the Wells Fargo analyst, told CNBC.

An all of the above strategy is the only thing that we see as the way to maintain the reliability and the affordability that our customers count on.”

Lynn Good

Duke Energy, Chief Executive Officer

Many of the renewables will be installed in areas that are not immediately adjacent to data centers, he said. It will take time to build power lines to transport resources to areas of high demand, the analyst said.

Another constraint on renewables right now is the currently available battery technology is not efficient enough to power data centers 24 hours a day, said Zack Van Everen, director of research at investment Tudor, Pickering, Holt & Co.

Nuclear is a potential alternative to gas and has the advantage of providing carbon free energy, but new advanced technology that shortens typically long project timelines is likely a decade away from having a meaningful impact, according to Wells Fargo.

Richard Kinder, executive chairman of pipeline operator Kinder Morgan, said significant amounts new nuclear capacity will not come online for the foreseeable future, and building power lines to connect distant renewables to the grid will take years. This means natural gas has to play an important role for years to come, Kinder said during the company’s earnings call in April.

“I think acceptance of this hypothesis will become even clearer as power demand increases over the coming months and years and it will be one more significant driver of growth in the demand for natural gas that will benefit all of us in the midstream sector,” Kinder said.

Environmental impact

Any expansion of natural gas in meeting U.S energy demand is likely to be met with opposition from environmental groups who want fossil fuels to be phased out as soon as possible.

Goldman Sachs forecast carbon emissions from data centers could more than double by 2030 to about 220 million tons, or 0.6% of global energy emissions, assuming natural gas provides the bulk of the power.

Virginia has mandated that all carbon-emitting plants be phased out by 2045. Dominion warned in its resource plan that the phase out date potentially raises system reliability and energy independence issues, with the company relying on purchasing capacity across state lines to meet demand.

Duke Energy CEO Lynn Good said natural gas “can be a difficult topic,” but the fossil fuel is responsible for 45% of the power company’s emissions reductions since 2005 as dirtier coal plants have been replaced. Good said electricity demand in North Carolina is growing at a pace not seen since the 1980s or 1990s.

“As we look at the next many years trying to find a way to expand a system to approach this growth, I think natural gas has a role to play,” Good said at the Columbia Global Energy Summit in New York City in April. The CEO said natural gas is needed as a “bridge fuel” until more advanced technology comes online.

“An all of the above strategy is the only thing that we see as the way to maintain the reliability and the affordability that our customers count on,” Good said.

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Friday’s S&P 500 and Nasdaq-100 rebalance may reflect concerns over concentration risk

It’s arguably the biggest stock story of 2023: a small number of giant technology companies now make up a very large part of big indexes like the S&P 500 and the Nasdaq-100. 

Five companies (Apple, Microsoft, Amazon, Nvidia and Alphabet) make up about 25% of the S&P 500. Six companies (Apple, Microsoft, Amazon, Nvidia, Alphabet and Broadcom) make up about 40% of the Nasdaq-100. 

The S&P 500 and the Nasdaq are rebalancing their respective indexes this Friday. While this is a routine event, some of the changes may reflect the concerns over concentration risk. 

A ton of money is pegged to a few indexes 

Now that the CPI and the Fed meeting are out of the way, these rebalances are the last major “liquidity events” of the year, corresponding with another notable trading event: triple witching, or the quarterly expiration of stock options, index options and index futures. 

This is an opportunity for the trading community to move large blocks of stock for the last gasps of tax loss harvesting or to position for the new year. Trading volume will typically drop 30%-40% in the final two weeks of the year after triple witching, with only the final trading day showing significant volume.

All of this might appear of only academic interest, but the big move to passive index investing in the past 20 years has made these events more important to investors. 

When these indexes are adjusted, either because of additions or deletions, or because share counts change, or because the weightings are changed to reduce the influence of the largest companies, it means a lot of money moves in and out of mutual funds and ETFs that are directly or indirectly tied to the indexes. 

Standard & Poor’s estimates that nearly $13 trillion is directly or indirectly indexed to the S&P 500. The three largest ETFs (SPDR S&P 500 ETF Trust, iShares Core S&P 500 ETF, and Vanguard S&P 500 ETF) are all directly indexed to the S&P 500 and collectively have nearly $1.2 trillion in assets under management. 

Linked to the Nasdaq-100 — the 100 largest nonfinancial companies listed on Nasdaq — the Invesco QQQ Trust (QQQ) is the fifth-largest ETF, with roughly $220 billion in assets under management. 

S&P 500: Apple and others will be for sale. Uber going in 

For the S&P 500, Standard & Poor’s will adjust the weighting of each stock to account for changes in share count. Share counts typically change because many companies have large buyback programs that reduce share count. 

This quarter, Apple, Alphabet, Comcast, Exxon Mobil, Visa and Marathon Petroleum will all see their share counts reduced, so funds indexed to the S&P will have to reduce their weighting. 

S&P 500: Companies with share count reduction

(% of share count reduction)

  • Apple        0.5%
  • Alphabet   1.3%
  • Comcast    2.4%
  • Exxon Mobil  1.0%
  • Visa                0.8%
  • Marathon Petroleum  2.6%

Source: S&P Global

Other companies (Nasdaq, EQT, and Amazon among them) will see their share counts increased, so funds indexed to the S&P 500 will have to increase their weighting. 

In addition, three companies are being added to the S&P 500: Uber, Jabil, and Builders FirstSource.  I wrote about the effect that being added to the S&P was having on Uber‘s stock price last week.  

Three other companies are being deleted and will go from the S&P 500 to the S&P SmallCap 600 index: Sealed Air, Alaska Air and SolarEdge Technologies

Nasdaq-100 changes: DoorDash, MongoDB, Splunk are in 

The Nasdaq-100 is rebalanced four times a year; however, the annual reconstitution, where stocks are added or deleted, happens only in December. 

Last Friday, Nasdaq announced that six companies would be added to the Nasdaq-100: CDW Corporation (CDW), Coca-Cola Europacific Partners (CCEP), DoorDash (DASH), MongoDB (MDB), Roper Technologies (ROP), and Splunk (SPLK). 

Six others will be deleted: Align Technology (ALGN), eBay (EBAY), Enphase Energy (ENPH), JD.com (JD), Lucid Group (LCID), and Zoom Video Communications (ZM).

Concentration risk: The rules

Under federal law, a diversified investment fund (mutual funds, exchange-traded funds), even if it just mimics an index like the S&P 500, has to satisfy certain diversification requirements. This includes requirements that: 1) no single issuer can account for more than 25% of the total assets of the portfolio, and 2) securities that represent more than 5% of the total assets cannot exceed 50% of the total portfolio. 

Most of the major indexes have similar requirements in their rules. 

For example, there are 11 S&P sector indexes that are the underlying indexes for widely traded ETFs such as the Technology Select SPDR ETF (XLK). The rules for these sector indexes are similar to the rules on diversification requirements for investment funds discussed above. For example, the S&P sector indexes say that a single stock cannot exceed 24% of the float-adjusted market capitalization of that sector index and that the sum of the companies with weights greater than 4.8% cannot exceed 50% of the total index weight. 

At the end of last week, three companies had weights greater than 4.8% in the Technology Select Sector (Microsoft at 23.5%, Apple at 22.8%, and Broadcom at 4.9%) and their combined market weight was 51.2%, so if those same prices hold at the close on Friday, there should be a small reduction in Apple and Microsoft in that index. 

S&P will announce if there are changes in the sector indexes after the close on Friday. 

The Nasdaq-100 also uses a “modified” market-capitalization weighting scheme, which can constrain the size of the weighting for any given stock to address overconcentration risk. This rebalancing may reduce the weighting in some of the largest stocks, including Apple, Microsoft, Amazon, Nvidia and Alphabet. 

The move up in these large tech stocks was so rapid in the first half of the year that Nasdaq took the unusual step of initiating a special rebalance in the Nasdaq-100 in July to address the overconcentration of the biggest names. As a result, Microsoft, Apple, Nvidia, Amazon and Tesla all saw their weightings reduced. 

Market concentration is nothing new

Whether the rules around market concentration should be tightened is open for debate, but the issue has been around for decades.

For example, Phil Mackintosh and Robert Jankiewicz from Nasdaq recently noted that the weight of the five largest companies in the S&P 500 was also around 25% back in the 1970s.

Disclosure: Comcast is the corporate parent of NBCUniversal and CNBC.

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Jim Cramer’s top 10 things to watch in the stock market Tuesday

My top 10 things to watch Tuesday, Oct. 31

1. U.S. stocks edge up in premarket trading Tuesday, with S&P 500 futures rising 0.15%. The move comes after equities rallied Monday, with the S&P rising to its highest level in two months. Meanwhile, the yield on the 10-year Treasury was hovering around 4.8%. Oil prices are up around 0.6%, with West Texas Intermediate crude trading at $82.80 a barrel. Broadly, we’re seeing end-of-the-month shenanigans in a still oversold market.

2. Club holding Caterpillar (CAT) delivers a third-quarter earnings beat Tuesday, even as the stock tumbles roughly 4% on lackluster guidance. Nothing matters except the operating margin going lower in the fourth quarter.

3. Club name GE HealthCare Technologies (GEHC) outpaces earnings estimates Tuesday, bolstered by a recovery in demand for surgical procedures. The company also raises the low end of its full-year guidance. The stock is having a muted reaction, with shares up slightly, at around $63 apiece.

4. A Wall Street Journal analysis Tuesday argues Club holding Apple (AAPL) will face continued headwinds from China, while its “lucrative” relationship with Club name Alphabet (GOOGL) could also be at risk. It’s a classic negative piece on the company that crystalizes the ‘hate Apple trade’ that’s been going on.

5. MoffettNathanson downgrades Lyft (LYFT) to sell from neutral, while lowering its price target on the stock to $7 a share, down from $10. The firm expects margin compression at the rideshare company, and any long-term guidance to “likely disappoint.” Lyft is set to report third-quarter results on Nov. 8.

6. Baird upgrades one of our favorite technology defense players, L3Harris Technologies (LHX), to outperform from neutral, citing increased funding for defense globally. The firm also raises its price target on the stock to $216 a share, up from $198.

7. Oil giant BP PLC (BP) reports a sharp drop in profits year-over-year for the third quarter, sending shares roughly 4% lower in early trading Tuesday. Must they do a deal, too? There are only so many choices.

8. MoffettNathanson upgrades Roku Inc. (ROKU) to neutral from sell, citing the streaming-device maker’s focus on profitability and free cash flow. In short, the company got its act together and is becoming more dominant.

9. Shares of VF Corporation (VFC), the maker of Vans sneakers, are down nearly 9% in premarket trading after the company withdrew its full-year revenue and profit forecasts Monday. There are so many things wrong, but I think that CEO Bracken Darrell can pull it off. He turned around Logitech International (LOGI) and tripled the S&P over the decade in which he was in the top job.

10. DA Davidson adds Ulta Beauty (ULTA) to its “Best-of-Breed Bison” list. The firm reiterates a buy rating on the stock and a $495-a-share price target.

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Paramount’s Shari Redstone is open for business, but business may not be open for her

Shari Redstone, president of National Amusements and controlling shareholder of Paramount Global, walks to a morning session at the Allen & Company Sun Valley Conference in Sun Valley, Idaho, July 12, 2023.

David A. Grogan | CNBC

Shari Redstone may have missed her window.

Paramount Global‘s controlling shareholder is open to a merger or selling the company at the right price, according to people familiar with her thinking. And she has been open to it for several years, said the people, who asked not to speak publicly because the discussions have been private.

Spokespeople for Redstone and Paramount Global declined to comment.

The problem has been finding the right deal for shareholders. Market conditions have made a transformative transaction difficult at best and highly unlikely at worst.

“The market is crying out for reshaping media company portfolios and consolidation,” said Jon Miller, chief executive at Integrated Media and a senior advisor at venture firm Advancit Capital, which Redstone co-founded. “But the deck is stacked against large-scale transactions now because of both immediate concerns in terms of ad sales, subscription video numbers and the cost of debt. No one wants to transact at the current market valuations that these companies are given.”

Paramount Global is an archetype for the media industry’s consolidation conundrum. The company consists of Paramount Pictures, the CBS broadcast network, 28 owned-and-operated local CBS stations, the streaming service Paramount+, free advertising-supported Pluto TV, “Star Trek,” “SpongeBob SquarePants,” MTV, Nickelodeon, Comedy Central, BET and Showtime. It also owns the physical Paramount studio lot in Los Angeles, California.

From a sum-of-the-parts perspective, the company holds a strong hand. Many of Paramount Global’s assets would fit nicely within larger media companies.

“Paramount has a tremendous amount of assets in its content library and they own some pretty powerful sports rights in the form of the NFL contract, Champions League soccer and March Madness,” Guggenheim analyst Michael Morris told CNBC last week.

“But, they are still losing money on their streaming service,” Morris said. “They need to pull these things together, right-size the content, super charge that topline through pricing and penetration, and then we can see investors get excited about this idea again.”

Declining revenue from the acceleration of pay-TV cord-cutting, continued streaming losses and rising interest rates have put Redstone in a bind. The company’s market capitalization has slumped to $7.7 billion, nearly the company’s lowest valuation since Redstone merged CBS and Viacom in 2019. At the time, that transaction gave the combined company a market valuation of about $30 billion.

It’s unclear whether staying the course will help turn investor sentiment. Warren Buffett, CEO of Berkshire Hathaway, one of Paramount Global’s biggest shareholders, told CNBC in April that streaming “is not really a very good business.” He also noted that shareholders in entertainment companies “really haven’t done that great over time.”

Paramount Global’s direct-to-consumer businesses lost $424 million in the second quarter and $511 million in the first quarter. The company reports third-quarter earnings Nov. 2.

CEO Bob Bakish said 2023 will be the peak loss year for streaming. Paramount Global cut its dividend to 5 cents per share from 24 cents per share to “further enhance our ability to deliver long-term value for our shareholders as we move toward streaming profitability,” Bakish said in May.

Wells Fargo analyst Steven Cahall suggested earlier this year that Bakish should shut down the company’s streaming business entirely, despite the fact that Paramount+ has accumulated more than 60 million subscribers.

“We believe Paramount Global is worth a lot more either as a content arms dealer or as a break-up for sale story,” Cahall wrote in a note to clients in May. “Great content, misguided strategy.”

Big Tech lifeline

Bob Bakish, CEO of Paramount, speaks with CNBC’s David Faber on Sept. 6, 2023.

CNBC

Executives at Paramount Global continue to hold out hope that a large technology company, such as Apple, Amazon or Alphabet, will view the collection of assets as a way to bolster their content aspirations, according to people familiar with the matter.

Paramount+’s 61 million subscribers could help supersize an existing streaming service such as Apple TV+ or Amazon’s Prime Video, or give Alphabet’s YouTube a bigger foothold into subscription streaming beyond the National Football League’s Sunday Ticket and YouTube TV.

While Federal Trade Commission Chairman Lina Khan has been particularly focused on limiting the power of Big Tech companies, Apple, Amazon and Alphabet may actually be better buyers than legacy media companies from a regulatory standpoint. They don’t own a broadcast TV network, unlike Comcast (NBC), Fox or Disney (ABC). It’s highly unlikely U.S. regulators would allow one company to own two broadcast networks. Divesting CBS is possible, but it’s so intertwined with Paramount+ that separating the network from the streaming service would be messy.

“We believe Paramount Global is too small to win the streaming wars, but it is bite-size enough to be acquired by a larger streaming competitor for its deep library of film and TV content, as well as its sports rights and news assets,” Laura Martin, an analyst at Needham & Co., wrote in an Oct. 9 research note to clients.

Acquiring Paramount Global would be a relative drop in the bucket for a Big Tech company. Paramount Global’s market value was below $8 billion as of Friday. It also has about $16 billion in long-term debt.

Still, even with huge balance sheets and trillion-dollar valuations, there’s no evidence technology companies want to own declining legacy media assets such as cable and broadcast networks. Netflix has built its business specifically on the premise that these assets will ultimately die. Paramount’s lot and studio may be appealing for content creation and library programming, but that would leave Redstone holding a less desirable basket of legacy media assets.

Breakup difficulties

It’s possible Redstone could break up the company and sell off legacy media assets to a private equity firm that could milk them for cash. But Paramount Global’s diminished market valuation, relative to its debt, likely makes a leveraged buyout less appealing for a potential private equity firm.

Moreover, rising interest rates have generally slowed down take-private deals in all industries, as the cost of paying debt interest has soared. Globally, buyout fund deal volume in the first half of 2023 is down 58% from the same period a year ago, according to a Bain & Co. study.

If a full sale to Big Tech and a partial sale to private equity won’t happen, another option for Redstone is to merge or sell to another legacy media company. Warner Bros. Discovery could merge with Paramount Global, though putting together Warner Bros. and Paramount Pictures may hold up deal approval with U.S. regulators.

Beyond regulatory issues, recent history suggests big media mergers haven’t worked well for shareholders. Tens of billions of dollars in shareholder value have been lost in recent media mergers, including WarnerMedia and Discovery, Disney and the majority of Fox, Comcast/NBCUniversal and Sky, Viacom and CBS, and Scripps and Discovery.

Merger partners such as Warner Bros. Discovery also may prefer to sell or merge with a different company, such as Comcast’s NBCUniversal, if regulators allow a big media combination.

Redstone has recently dabbled around the edges, shedding some assets, such as book publisher Simon & Schuster, and engaging in talks to sell a majority stake in cable network BET.

But Paramount Global shelved the idea of selling a stake in BET in August after deciding sale offers were too low to outweigh the value of keeping the network in its cable network portfolio. With the total company’s market valuation below $8 billion, it’s difficult to convince buyers to pay big prices for parts. A change in broader investment sentiment that pushes the company’s valuation higher may help Redstone and other Paramount Global executives get more comfortable with divesting assets.

Selling National Amusements

If Redstone can’t find a deal to her liking, she could also sell National Amusements, the holding company founded by her father, Sumner Redstone, that owns the bulk of the company’s voting shares. National Amusements owns 77.3% of Paramount Global’s Class A (voting) common stock and 5.2% of the Class B common stock, constituting about 10% of the overall equity of the company.

Redstone took a $125 million strategic investment from merchant bank BDT & MSD Partners earlier this year to pay down debt, reiterating her belief in Paramount Global’s inherent value.

“Paramount has the best assets in the media industry, with an incredible content library and IP spanning all genres and demographics, as well as the No. 1 broadcast network, the leading free ad-supported streaming television service and the fastest-growing pay streaming platform in the U.S.,” Redstone said in a statement in May. “NAI has conviction in Paramount’s strategy and execution, and we remain committed to supporting Paramount as it takes the necessary steps to build on its success and capitalize on the strategic opportunities in our industry.”

Selling National Amusements wouldn’t alter Paramount Global’s long-term future. But it is a way out for Redstone if she can’t find a deal beneficial to shareholders.

Paramount Global isn’t actively working with an investment bank on a sale, according to people familiar with the matter. The company is content to wait for a shift in market conditions or regulatory officials before getting more aggressive on a transformational deal, said the people.

Still, Redstone’s predicament aptly sums up legacy media’s current problems. The industry is counting on a turn in market sentiment, while executives privately grumble that in the near term there’s little they can do about it.

WATCH: Mad Money host Jim Cramer weighs in on Paramount Global

Lightning Round: Paramount Global might drop another two to three points lower, says Jim Cramer

Disclosure: Comcast’s NBCUniversal is the parent company of CNBC.

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Disney and Charter reach deal to end cable blackout in time for ‘Monday Night Football’

The blackout fight between cable giant Charter Communications and Disney is over.

Hours ahead of “Monday Night Football,” which airs on Disney’s ESPN, the companies reached a deal that would allow millions of Charter cable customers to watch the game.

The deal will see Disney’s ad-supported streaming apps Disney+ and ESPN+ included in packages for some of Charter’s Spectrum pay TV customers. Disney will receive an increase on the subscriber fees it receives from Charter.

Earlier on Monday CNBC’s David Faber reported a deal between the two companies was nearing and would include a discount on pricing for Disney streaming services for Charter customers.

The news release for the agreement said it includes:

  • The Disney+ basic ad-supported offering will be provided to customers who buy the Spectrum TV Select package.
  • ESPN+ will be provided to subscribers to Spectrum TV Select Plus subscribers.
  • The highly anticipated ESPN streaming service will be made available to Spectrum TV Select subscribers when it launches.

Charter’s and Disney’s stocks, as well as media peers including Warner Bros. Discovery and Paramount Global traded higher Monday afternoon.

Earlier this summer, Charter announced it would soon offer a sports-lite package to customers, primarily nixing regional sports networks and creating a cheaper option for consumers who don’t watch the networks.

Customers on the Spectrum TV Select Plus plan – which includes the regional sports networks – will receive ESPN+ subscriptions as part of their package.

The plans are set to roll out during the third quarter.

Meanwhile, Disney+’s ad-supported option will be provided to customers who select the Spectrum TV Select package. When ESPN launches its direct-to-consumer streaming option, these customers will also receive access to it. (The new ESPN app will be a streaming version of the cable channel, unlike the ESPN+ app, which doesn’t include all programming.)

The inclusion of Disney’s ad-supported streaming apps for Charter’s customers had appeared to be a sticking point in the negotiations that stalled and led to a blackout. While this deal doesn’t appear to give all Charter pay TV customers access to all of Disney’s apps – which also include Hulu – it is a step in that direction as cord cutting ramps up for pay TV distributors.

The dispute between Charter and Disney had been ongoing since late August when carriage renewal negotiations broke down between the two companies and left millions of customers without Disney TV channels, including ESPN, FX and Disney Channel.

At the time of the blackout, Charter had about 14.7 million customers across 41 states, with New York being one of its top TV markets. The dispute dragged on past the NFL season kickoff Thursday, but ended just in time for the “Monday Night Football” matchup between the New York Jets and Buffalo Bills.

As a result, Charter saw some of its Spectrum pay TV customers cut its bundle in favor of internet TV options like Disney’s Hulu + Live TV or Google‘s YouTube TV. In the days after the blackout — which occurred amid the U.S. Open tennis tournament and beginning of the college football season, both of which are featured on ESPN — Disney said Hulu + Live TV sign-ups were more than 60% higher than expected.

While sign ups for internet TV bundles like Hulu + Live TV and YouTube TV are often higher at this time of year due to the NFL and college football, there was a spike in signups recorded by data provider Antenna. While Hulu + Live TV was up more than 60%, YouTube TV – this season’s carrier of the NFL’s “Sunday Ticket” package of out-of-market games – was up about 115%.

The NFL is often the key source of leverage network owners like Disney have in negotiations. Media companies, including Disney, collectively paid more than $100 billion to air NFL games over an 11-year period.

Disney owns broadcaster ABC, which airs some “Monday Night Football” games. ESPN+ has an exclusive “Monday Night Football” game this season, too. Disney agreed to pay around $2.7 billion annually for these rights, CNBC previously reported.

Broadband vs. cable

Carriage disputes and blackouts are a common occurrence. But Charter billed the moment Disney’s networks went dark as a more pivotal moment, as the company proclaimed that the pay TV model was broken.

Satellite TV provider DirecTV and broadcast station owner Nexstar Media Group have been in a similar dispute since earlier in the summer. It has continued past the start of the NFL season. Broadcast networks including CBS and Fox air local NFL games on Sundays.

Hours after the blackout began, Charter executives held an investor call pushing for a revamped deal with Disney that would give Spectrum pay TV customers free access to Disney’s ad-supported streaming apps Disney+, ESPN+ and Hulu.

Disney's succession mess: The inside story of Iger and Chapek

This point in particular seemed to be the sticking point in negotiations.

Disney had responded that its streaming and TV networks weren’t equal due to the original content that premieres exclusively on live TV and its multibillion investments in exclusive streaming content.

The public tussle has highlighted the issues facing media companies. Cord cutting has been rampant and consumers are switching to streaming services at a fast clip. Media companies are using content from their pay TV channels for their streaming services, arguably accelerating the transition.

Yet, the fees generated from pay TV providers like Charter for carrying the live networks are still robust — even if they are decreasing with fewer customers in the bundle — and propping up media companies’ cash flow and profitability. Media companies like Disney are still working to make streaming a profitable business.

ESPN is considered to receive some of the highest fees, even before the Monday deal with Charter. The network receives $9.42 per subscriber a month, while other Disney networks like ESPN2, FX and Disney Channel get $1.21, 93 cents and $1.25, respectively, according to data from S&P Global Market Intelligence. A Disney representative hasn’t commented on the fees. The media giant has more than 20 networks.

While providing pay TV services has long been part of Charter, broadband has usurped it as the cornerstone of its profitability and business. Even as consumers cut the TV cord, they remain as broadband customers.

Charter CEO Chris Winfrey had said the company planned to push for similar terms in upcoming negotiations with other content companies.

In the days following the blackout, Winfrey spoke at an investor conference where he said those discussions with other media content companies were already beginning to take place.

He also reiterated the company’s position that the pay TV model was broken and at an inflection point.

Disclosure: Comcast, which owns CNBC parent NBCUniversal, is a co-owner of Hulu.



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The Investing Club’s top things to watch in the stock market Friday

The Club’s top things to watch Friday, August 25

1. Stocks edge up in premarket trading Friday after coming under pressure Thursday. The market is looking to Federal Reserve Chair Jerome Powell’s speech in Jackson Hole, Wyoming, at 10:05 a.m. ET. Investors expect Powell to argue interest rates will need to stay higher for longer in order to stamp out sticky inflation.

2. The Chinese government on Friday moves to ease its mortgage policies in order to boost China’s struggling property market, but it isn’t enough to generate a rally in Asian markets. The Shanghai Composite Index lost 0.6%, while Hong Kong’s Hang Seng Index fell 1.4%.

3. Chipmaker Marvell Technology (MRVL) delivers a quarter and guidance in line with Wall Street’s expectations, as strength in artificial-intelligence applications is offset by continued weakness in some of its legacy businesses like storage. The stock fell more than 3% in premarket trading Friday. The company increases its outlook for AI, with the expectation to exit the year at a $200 million quarterly run rate, or $800 million annualized. That may not be enough upside for today given the tepid reaction to Club name Nvidia‘s (NVDA) huge upside guide Wednesday, but still a good long-term story.

4. Elsewhere in the the world of AI, Baird says next week’s Google Cloud Next conference could show how Club holding Alphabet (GOOGL) is leveraging AI capabilities. Meanwhile, Oppenheimer reiterates its thesis that Club name Microsoft (MSFT) will be the “operating system for AI.”

5. Retailer Nordstrom (JWN) beats on earnings but reiterates a cautious full-year outlook. The company also notes losses from theft are at a historical high. Shares fell over 4% in extended trading Thursday. More broadly, retail earnings this season have showed that American consumers are spending with value top of mind.

6. Loop Capital on Friday upgrades Netflix (NFLX) to buy, from hold, while raising its price target to $500 a share, up from $425. The firm cites improving fundamentals, while noting the shares have corrected 15% from Netflix stock’s recent gains. Upgrading at this juncture is the right way to look at a sell-off in a high-quality company.

7. More ESPN partnerships on the way? Club holding Amazon (AMZN) is reportedly in talks with fellow Club name Walt Disney (DIS) about developing an ESPN streaming service, according to The Information. Disney currently owns 80% of the sports network.

8. Realty Income Corp (O) on Friday announces a $950 million investment in the real-estate assets of The Bellagio Las Vegas, acquiring a 21.9% indirect interest from Blackstone Real Estate Income Trust (BREIT) that values the property at $5.1 billion.

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Phishing scams targeting small business on social media including Meta are a ‘gold mine’ for criminals

With so much of daily life happening over social media, it’s not surprising that small businesses are relying more and more on Instagram, Facebook and other platforms to spread the word about their business and sell products.

But there is one big catch: small business owners are at a big disadvantage on these platforms when it comes to cybersecurity. 

Take it from Pat Bennett, an entrepreneur who sold granola in the Cleveland area and got about half of her sales through Instagram. The business was already under pressure from the rising cost and availability of sweeteners and oats when her business Instagram page, Pat’s Granola, came under attack. 

The attack looked innocuous. Bennett received a message on Instagram from a small business owner she knows personally. Using a link, her acquaintance asked Bennett to vote for her in a contest. It was a legitimate contest, and it wasn’t unusual for Bennett to communicate with people on Instagram Messenger. As it turned out, it was an attack that went to everyone in her contact’s address book. Bennett lost control of her Instagram and Facebook accounts and hasn’t regained access, despite using all the channels Meta recommends. 

With help, she was able to track the IP addresses to Europe, but that wasn’t enough to avoid a worst-case scenario. Bennett received a letter saying she could regain control of her accounts if she paid close to $10,000. She declined to pay the ransom and had to start all over again. 

Pat Bennett, a Cleveland-based entrepreneur who sells granola says about half of her sales are through Instagram, but she became victim to an Instagram Messenger hack that resulted in Bennett to losing control of her Instagram and Facebook accounts, and she hasn’t regained access, despite using all the channels Meta recommends.

Source: Pat Bennett

Bennett’s experience isn’t isolated. As it turns out, small businesses like Pat’s Granola are frequent targets of hacking rings. CNBC quarterly surveys of small business owners in recent years have indicated that many do not rate the risk of cyberattack highly, yet the FBI says that in recent years a wave of hacks has targeted small business. In 2021, the FBI’s Internet Crime Complaint Center received 847,376 complaints regarding cyberattacks and malicious cyber activity with nearly $7 billion in losses, the majority of which targeted small businesses.

Small business owners say social media giants such as Meta have done little to help them address the problem. 

A Meta spokesperson declined to offer specific comment in response to small business owner concerns, but pointed to its efforts to protect businesses targeted by malware. The company has security researchers that track and take action against “threat actors” worldwide and has detected and disrupted nearly 10 new malware strains this year. Malware can target victims through email phishing, browser extensions, ads and mobile apps and various social media platforms. The links look innocuous and rely on tricking people into clicking on or downloading something. 

Why Main Street is an easy target 

With marketing and selling over Instagram and other social platforms being an attractive way for small businesses to reach and expand their customer base, it’s not surprising that criminal organizations have followed.

According to SCORE, a nonprofit partly funded by the U.S. Small Business Administration, nearly half of small business owners cited social media as their preferred digital marketing channel. Compare that to 51% who cited their company website and 33% who prefer online advertising. Moreover, 73% of business owners said they consider social media to be their most successful digital marketing channel, with 66% citing Facebook, 42% citing Alphabet’s YouTube and 41% Instagram. 

“Criminals are in the business of stealing, so you’re going to go where you can make money and get away with it. And social media accounts of small businesses are like a gold mine,” said Joseph Steinberg, a cyber security privacy and AI expert, who sees small business social media accounts as “low hanging fruit.” 

Bryan Palma, chief executive officer at Trellix, a cybersecurity company that worked with the FBI and Europol to take down Genesis Market, an “eBay” for cybercrime criminals, earlier this year, said he has been seeing a range of cybercriminals targeting platforms such as Instagram, YouTube and Facebook. Some are independent hackers, while others are larger, organized crime groups that target social media accounts with more than 50,000 followers. 

Common online scams to watch out for

One common scam, Palma said, is criminals will create a fake Instagram page notifying the user that there’s a problem with their post, and they should “click here, and we’ll help you fix it.” The link redirects users to a fake site asking them to type in their Instagram credentials. 

That’s similar to what happened to Cai Dixon, owner of Copy-Kids, which makes video content for kids. Dixon created an active online Facebook group with 300,000 followers and was getting as much as $2,000 a month in performance bonuses. In March, she got a message purporting to be from Meta, asking if she would like a blue badge verification. Because she was already in contact with Meta employees over Messenger, she believed the message and gave her private information. 

Turns out, it was a phishing scheme. Almost immediately, Dixon lost control of the account and the Facebook group she had spent years cultivating. The hackers removed Dixon and all the other page moderators and started posting animal cruelty videos, videos of heavy machinery and fake content. When she finally talked to someone on Facebook, “they said the only thing I could do was to tell all my friends to report it hacked and then they could take it down.” 

Cai Dixon, owner of Copy-Kids, which makes video content for kids, created an active online Facebook group with 300,000 followers and was getting as much as $2,000 a month in performance bonuses. But in March, a phishing scheme led Dixon to lose control of the account and the Facebook group she had spent years cultivating.

Source: Cai Dixon

These common hacks for small businesses offer little recourse.

“It’s especially damning for a small business, which has a pretty minuscule security budget compared to a General Electric or GM, which are running the best tools,” said Greg Hatcher, founder of White Knight Labs. 

Companies with 100 or fewer employees experience 350% more social engineering attacks than larger companies, according to Barracuda, a cloud security company. More than half of social engineering attacks are phishing, and one in five organizations had an account compromised in 2021. 

Social media companies are aware of the problem, but fending off attacks on small businesses is time-consuming and expensive. It’s one matter when a large Fortune 500 company that spends millions on advertising or a high-profile individual encounters a hacker. But when it comes to small business owners, there’s less financial incentive. 

“It is often better for social media companies from a purely bottom line to ignore small businesses when they have problems,” Steinberg said, adding that small businesses are generally getting the service for free or close to free. 

Two-factor authentication and cybersecurity tools

Though the threat seems vast, cybersecurity experts said the most effective defense is fairly basic. Not enough people use the security features that social platforms already offer, like two-factor authentication. Entrepreneurs can also use business password managers, designed for multiple users who may need access to the same accounts. 

“Small businesses don’t have to be completely hung out to dry. They can have good cyber hygiene, with a good password policy,” said Hatcher, emphasizing length, ideally 30-40 characters, over complexity as well as two-factor authentication. 

Knowing what to look for and being wary of any links or requests for information can also go a long way. For the unfortunate who get hacked and lose access to accounts, the Identity Theft Resource Center is a nonprofit that can help victims figure out the next steps.   

For now, the online world is still under-regulated and monitored.

Cyberattacks conducted through tech giants have caught the attention of the federal government’s main cyber agency, the Cybersecurity and Infrastructure Security Agency. In an interview with CNBC’s “Tech Check” in January of this year, CISA director Jen Easterly said, “Technology companies who for decades have been creating products and software that are fundamentally insecure need to start creating products that are secure by design and secure by default with safety features baked in,” she said. But the U.S. government has so far taken a cautious approach with support for small business specifically – a spokeswoman for the U.S. Cybersecurity Infrastructure Agency told CNBC in January that it doesn’t regulate small business software, instead pointing to a blog post with guidance aimed at helping businesses large enough to have a security program manager and an IT lead.

“There are a lot of people spending the majority of their time in the virtual world, but the resources are not as extensive. We still have more resources protecting streets,” Palma said. Some of the big online scams get addressed, but there are many “smaller issues” that are costing people and small businesses real money, but governments and companies aren’t equipped to deal with it. “I think over time, we have to shift that balance,” he said. 

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Fervo Energy hits milestone in using oil drilling technology to tap geothermal energy

Fervo Energy’s full-scale commercial pilot, Project Red, in northern Nevada.

Photo courtesy Fervo Energy

Geothermal startup Fervo Energy announced a key technical milestone on Tuesday, paving the way for geothermal energy to play a bigger role in the transition to clean energy.

Fervo drills deep wells and pumps water into them. The water grows hot from the heat of the earth, then Fervo pumps it back to the surface, where a turbine converts that heat to electricity.

Fervo successfully completed a 30-day test, considered an industry standard for geothermal, at its commercial pilot plant in northern Nevada, the company said in a statement. In the test, Fervo drilled down drilled down to 7,700 feet and then turned to drill another 3,250 feet horizontally, and internal temperatures reached roughly 375 degrees Fahrenheit.

The test at its pilot plant achieved conditions that would generate 3.5 megawatts of electricity production, the company said. A single megawatt is roughly enough electricity to meet the demand of 750 homes at once.

Fervo has just started construction on a 400-megawatt project that it expects to be online by 2028, which would power approximately 300,000 homes.

“Fervo’s successful commercial pilot takes next-generation geothermal technology from the realm of models into the real world and starts us on a path to unlock geothermal’s full potential,” Jesse Jenkins, macro-scale energy systems engineer and professor at Princeton, said in a written statement.

Currently, most geothermal energy resources are located near tectonic plate boundaries where magma gets close to the earth’s surface, heating up water trapped in the earth’s surface nearby. In the United States, geothermal energy supplies only 0.4% of electricity right now.

Instead of relying on naturally occurring conditions, Fervo is using drilling technology developed by the oil and gas industry with hydraulic fracturing to create reservoirs in rocks deep underground.

“By applying drilling technology from the oil and gas industry, we have proven that we can produce 24/7 carbon-free energy resources in new geographies across the world,” Tim Latimer, the CEO of Fervo Energy, said in a written statement.   

Fervo Energy co-founders, Jack Norbeck (left) and Tim Latimer.

Photo courtesy Fervo Energy

Leveraging oil and gas drilling technology

A decade ago, Latimer was working in the oil and gas industry as a drilling engineer.

“I loved the work, but I was passionate about climate change. I saw all the tech advancement around me and realized that it could be used for geothermal energy,” Latimer said in a thread he posted on Twitter on Tuesday. Developments in oil and gas drilling, like the development of the polycrystalline diamond cutter, “changed the game,” Latimer said.

“With dramatically lower drilling costs, it would now be possible to drill down to depth and then drill horizontally for enhanced geothermal, significantly increasing the productivity of the resource, and enabling development anywhere,” Latimer wrote on Twitter.

When Latimer first had the idea to use developments in oil and gas drilling to tap into geothermal energy, he faced a lot resistance. The one place he found an interested ear was at Stanford’s geothermal program, where he went to grad school and in 2017 co-wrote and published a paper on the topic. That paper was the foundation for Fervo Energy, which Latimer launched in 2017 with Jack Norbeck, also from Stanford’s geothermal program.

“The last six years have been quite a journey. I never expected how much skepticism and pushback we would receive for what we thought was an obvious idea,” Latimer said in his Twitter thread. “So we set out to systematically prove this was a truly revolutionary, and viable, way of doing geothermal.”

They did find believers, though, and have since raised over $200 million in investment, Latimer said on Twitter.

Fervo’s partnership with Google and looking to the future

Google has been a leader in its commitment to operate on 24-7 carbon-free energy by 2030. “Solving climate change is humanity’s next big moonshot,” Google GEO Sundar Pichai has said.

To deliver on its goal to operate on 24-7 carbon-free energy by 2030, Google has had to buy a lot of renewable energy to support all of its energy-hungry computing processes.

In 2021, Google singed a partnership with Fervo to develop a geothermal power project.

Unlike wind and solar energy, which are intermittent, geothermal energy is an “‘always-on’ carbon-free resource that can reduce our hourly reliance on fossil fuels,” Michael Terrell, Google’s senior director for energy and climate, wrote in 2021 when the partnership was first announced.

“Achieving our goal of operating on 24/7 carbon-free energy will require new sources of firm, clean power to complement variable renewables like wind and solar,” said Terrell in a statement published Tuesday. “We partnered with Fervo in 2021 because we see significant potential for their geothermal technology to unlock a critical source of 24/7 carbon-free energy at scale.”

Fervo Energy’s full-scale commercial pilot, Project Red, in northern Nevada.

Photo courtesy Fervo Energy

As part of the partnership, Google is developing the artificial intelligence and machine learning systems to improve Fervo’s efficiency, and Fervo is adding clean energy to the grid in Nevada, where Google is a large clean energy customer.

The U.S. Department of Energy has also launched what it calls the “Enhanced Geothermal Shot,” which is an effort to reduce the cost of enhanced geothermal energy by 90% to to $45 per megawatt hour by 2035. The Department of Energy says it hopes enhanced geothermal systems can potentially provide clean energy to 65 million American homes.

Fervo still has a long road ahead from building a pilot plant to commercializing geothermal energy at scale, but Wilson Ricks, who works in Jenkins’ lab at Princeton and cowrote a paper on the role of geothermal energy in future decarbonized energy systems, says Fervo’s technical milestone is a real milestone.

“This is a very significant milestone in enhanced geothermal systems development. It is the first application of the advanced drilling and well stimulation techniques developed in the shale oil and gas boom to geothermal, and has demonstrated that these can be used to create artificial geothermal reservoirs delivering high flow rates,” Ricks told CNBC. “There is still more development to be done on the path to large-scale and cost-competitive commercial systems, but the significance of this achievement shouldn’t be understated.”

The kind of enhanced geothermal energy systems, like those that Fervo is developing, “could do double-duty as a form of long-duration energy storage, enhancing their ability to complement wind and solar in a decarbonized grid,” Ricks told CNBC.

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Retailers are gamifying shopping with virtual storefronts to boost engagement, loyalty

J. Crew virtual beach house.

Courtesy: J. Crew

In a brown shingled beach house tucked behind stalks of reed grass, J. Crew customers encounter a new shopping experience. 

Just beyond a set of wood steps and a wraparound porch, shoppers can explore a series of white-paneled rooms, a boathouse and a secret lighthouse that highlight the brand’s history and some of its most popular apparel. 

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Inside the rooms, shoppers can browse barn jackets, rollneck sweaters and rugby shirts. Outside on the porch, bathing suits are displayed on a clothesline.

While customers can select and purchase items as they would in any J. Crew store, the beach house comes with one key difference: It’s entirely virtual. 

To mark J. Crew’s 40th anniversary, the brand is launching its first immersive shopping experience Friday with e-commerce platform Obsess, which creates 3D, virtual stores for retailers that customers can access from their phones or laptops. 

Derek Yarbrough, the chief marketing officer of J. Crew and Madewell, told CNBC the company is planning a series of events to celebrate the brand’s anniversary. But they tend to be in places such as New York and Los Angeles, which limits the number of people who can attend, he said.

“With Obsess, we were really looking to have an exciting activation that we could execute for a larger audience and reach more of the people who love the brand in a bigger way,” Yarbrough said in an interview. “We really wanted this to be a passport to explore the world of J. Crew … and as the team brainstormed on it, it was a little bit of a no-brainer to take the form of a beach house.” 

J. Crew virtual beach house.

Courtesy: J. Crew

Obsess was launched in 2017 by its CEO, Neha Singh, a former Google software engineer. It aims to transform traditional online shopping into something more immersive, so shoppers remain engaged rather than lose interest as they endlessly scroll for their next purchase. 

In Obsess’ virtual storefronts, customers can create their own avatars. Depending on the retailer, they can also play games that can unlock more content, promotions or other bonuses that keep them in the virtual stores for longer, the company said. 

“What our platform does is it enables brands to create that much richer and more immersive digital experience that borrows the interface from gaming,” said Singh. “Today, the experience is so generic. Other than font and color, there’s really no differentiation between brands’ digital presence, but their physical retail presence is so different. So how can we bring some of those elements into online?”

Virtual storefronts on the rise

Many retailers saw the metaverse, a virtual world that offered another possible platform to sell products, as the hot new technology throughout last year. Many of those same companies have now largely forgotten it, as strides in artificial intelligence have surged to the top of business leaders’ minds a year later.

While the metaverse may be dead — for now — virtual storefronts are growing. Obsess is now powering more than 200 virtual stores that tens of millions of shoppers have visited and bought products in. 

The company’s clients include American Girl, Elizabeth Arden, Dior, Ralph Lauren, Corona, Laneige, Crocs, Coach, Mattel, Maybelline, Johnson & Johnson and even NBCUniversal, among others. 

The virtual storefronts allow retailers to bring a version of the metaverse to their customers, without the need for pricey headgear or other steep barriers to entry.

J. Crew virtual beach house.

Courtesy: J. Crew

“Technology never stops, and it’s going to keep progressing, but it has to be something that’s user-friendly, right? And parts of [the metaverse] are not user-friendly yet,” said Singh. “We launched the company before metaverse was a buzzy topic, and it really was just about: How can we use the latest technology to actually create a better customer experience?” 

When e-commerce was born in the 1990s, Amazon led the way in its online bookstore, which featured a white background and icons of books with text describing them.

Since then, little has changed when it comes to the basic interface of online shopping.

“If you think about e-commerce, the typical sort of interface today, it’s a grid of thumbnails on a white background; whether you’re shopping for fashion, or beauty or home, it’s really all the same,” Singh said. “The interface looks like a database that really hasn’t changed in 25 years [since] it was first created.” 

Gamifying shopping, boosting engagement 

Shoppers headed to J. Crew’s virtual store can access a series of interactive games, including a scavenger hunt and a quiz on catalog covers, where customers will be asked to guess what year they were published. 

Once they go through all the rooms and complete the quests, shoppers gain access to the secret lighthouse.

J. Crew virtual beach house.

Courtesy: J. Crew

“We see actually a 10-times-higher add-to-cart rate if people engage and complete the game. So typically now in all of our virtual stores there’s some element of gamification, and it’s very kind of naturally embedded into the flow of the store,” said Singh. 

“The more interesting you can make the experience and keep people engaged and give them content and give them games, the more they shop,” she said.

Some companies offer discounts or promotions as a “prize” for completing a game, which could contribute to boosted checkout rates. 

Obsess said one of its customers, a luxury jewelry brand, said the average order value in its virtual store was 111% higher than on its traditional e-commerce site. 

However, J. Crew’s Yarbrough said he is most excited about how long the virtual store could keep customers engaged. 

J. Crew virtual beach house.

Courtesy: J. Crew

For example, on American Girl’s virtual store, shoppers spend six to 10 minutes on average per session, which is 1,000% longer than the average time spent for all shoppers on the company’s website, Obsess said. 

One luxury fashion brand said the amount of time people spent in its virtual store was 74% higher than time spent on its traditional e-commerce site, according to Obsess. Overall, introducing avatars increases time spent by an average 73%, and when customers create an avatar, they’re on average 184% more likely to proceed to checkout, Obsess said. 

“In today’s landscape, it’s so hard to not only get but keep people’s attention — you usually get a few seconds,” Yarbrough said. “So, if I can actually get someone to engage with an experience for several minutes or even longer, oh my God, that’s such a rich opportunity to really get someone hooked.” 

Disclosure: NBCUniversal is the parent company of CNBC.

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