SHAPING THE FUTURE

An all-natural, biodegradable substance being touted as an alternative to plastic could be worth billions to the two New Yorkers who discovered it, writes Erik Jaques

Upstate New York company Ecovative Design has come up with a novel way to deal with the immortality of landfill-hogging, petrochemically intense plastics: grow your own. The company’s offbeat platform technology, Mycobond, takes aggregations of worthless agricultural waste such as rice hulls and cotton burrs and permeates them with filamentous mushroom roots (aka fungal mycelium). Over the course of five to 10 days the waste is alchemised into an all-natural, all-rigid material with superior properties to synthetic foams such as environmental menace Styrofoam, which, according to a recent EPA study, is taking up a quarter of all US landfill space.

Ecovative co-founders Eben Bayer and Gavin McIntyre alighted on the utilitarian use of what is essentially an organism with a body like a living polymer in 2007 while studying for degrees in mechanical engineering and product design and innovation at Rensselaer Polytechnic Institute in Troy, New York State. They were fascinated by how mycelium resulting from mushrooms growing on woodchips evolved into a solid entity.

Their hunch that this could be something very exciting indeed was affirmed by extraordinary test results from the National Institute of Standards and Technology. Not only is mycelium non-toxic, mould and water-resistant, and fireproof, it is also stronger pound- for-pound that concrete. This begat an obsession to make this remarkable natural process a launchpad for a myriad plastic- usurping commercial realities. Bayer and McIntyre formed Ecovative shortly after graduation. Much blood, sweat, boot- strapping and a multitude of grants later, their company now finds itself as the mycological superstar in what they have dubbed the “bio-industrial” revolution.

“What really did it for us was when we realised we had something truly disruptive in terms of making a new material,” says chief executive Bayer, whose predilection for all things mycological stems from his upbringing on a farm in Vermont. “I was really looking at the problem and realising there aren’t any good ways to make rigid materials that don’t involve nasty polymers, and asking how nature would do things. It wasn’t just a way of doing something 10% better, it truly represented a new way of growing plastic.”

At the moment, Ecovative offers a single product (although its online shop sells novelty items such as an ornamental ducks, bowls and wine cartons). The star of the show is EcoCradle, a compostable packaging material that offers the same protection as expanded polystyrene but is entirely biodegradable (aerobically and anaerobically) and produced using a tenth of the energy of synthetic foams. Ecovative can adapt the product to clients’ specific needs – from material properties to look and feel – in order to control the density, resilience, surface finish and feature resolution of the packaging. Once finished, it can be used as compost or thrown away by eco-conscious folk, safe in the knowledge it won’t stick around very long before returning to the soil.

Ecovative’s next product, due to hit the market this year, is Greensulate, a high-performing insulation alternative being developed with funding from the New York State Energy Research and Development Authority and the US Environmental Protection Agency.

Behind the scenes, the R&D department is constantly on the lookout for new applications, with particular progress being made in the construction, automotive and structural cores (cabinets and beyond) sectors.“We have a disruptive way of replacing plastics that is also economical. Our vision is to replace plastics in any areas they don’t make sense,” says Bayer.

A tightly knit 20-person unit, Ecovative is an eclectic mix of off-centre innovators ranging from mycology experts and architects to biologists and mechanical engineers. “What sets our team apart is the dedication to what they are doing – they are working on this because they see it as an opportunity to make a positive change in the world, “ says Bayer.

The magic happens at a green-energy powered 930m2 manufacturing plant in Green Island, New York, where business is comfortably ensconced in its feet-finding pilot stage. Ecovative‘s production takes place twice a week for half of the year, with a fairly unassuming output of 5,000-10,000 parts per month. Revenue remains healthy at “a few $100,000”, mostly stemming from direct online orders, and Ecovative’s first major client: Steelcase, a Michigan-based office furniture company, though announcements are expected shortly about deals with “a couple of major US electronic companies”.

According to Bayer, there is the potential for big money on the horizon. Indeed, the protective packing market alone is viewed a “billion-dollar opportunity”.

Having capitalised on its grant-friendly status (with earnings of around $3m to date) and received support from a number of high-net-worth Angel investors, Ecovative is finally planning to launch its Series A funding round soon. Interest is said to be high and stretches beyond the US’s borders.

There’s plenty of movement in terms of its infrastructural footprint too, with concrete plans in place to establish a full-scale version of its manufacturing facility in New York State – a move that will not only crank up the output and introduce the technology to a broader client base, but also serve as a template for a host of regional facilities planned across the US in the coming years.

All Ecovative-owned or partnered manufacturing locales will be specifically designed so as to accommodate optimal local agricultural by-products. Texas would, for example, have a lot of cotton burrs, while Virginia or Spain would use rice husks and soybean hulls.

In the long term, Ecovative hopes to license its technology to ensure uptake is as wide as possible. Already, patents are pending in 35 countries. “We’re just getting started,” says Bayer.

A HIT FORMULA

From renting out DVDs in the post, Netflix has grown into an industry challenger, going toe-to-toe with Hollywood and commissioning its own TV shows. Colin Brown reports

The Cannes Film Festival opens this month, with actor Robert De Niro presiding over the competition jury, and it’s widely expected that Brad Pitt and Sean Penn will attend the premiere of Terrence Malick’s The Tree of Life, in which they star. Their combined presence on the red carpet suggests that cinema has escaped the destructive forces that have assailed every other business sector. However, behind the scenes, their lives are being turned upside down by the emergence of new players who have brought their own Method to the madness of movie-making. The most disruptive of these may well be Netflix.

What began in 1997 as a US mail-order DVD business that helped customers avoid late fees from video chains has morphed into an online film-watching powerhouse that has destabilised industry economics. The game-changer was Netflix’s inclusion on Microsoft’s Xbox console, a 2008 deal that offered a gateway into a potential 25 million homes. Having since moved into Canada, Netflix has set its sights on international expansion, setting up a bruising battle for living-room dominance against the likes of Amazon, owner of Europe’s LoveFilm.

Netflix’s sudden ascendancy can be measured on Wall Street, where it has a market capitalisation that has lingered around $11bn (€8bn) for several months. To put that in perspective, Netflix is valued at nearly 30% of Time Warner – an empire that includes several of its content suppliers, among them Warner Bros.

Netflix has already claimed one Old Media scalp, having effectively driven Blockbuster, once Hollywood’s largest single customer, into bankruptcy proceedings. Now it is breathing down the neck of HBO, Time Warner’s pay-TV superpower, by hoovering up the rights to stream movies over the internet during HBO’s premium pay-cable window – which typically starts four to seven months after a DVD release.

A lavish six-month shopping spree has left Netflix with exclusive access over the next several years to numerous

movies financed through independent studios. These include Relativity Media, whose latest hit, Limitless, co-stars De Niro. The strategy appears to be paying off. “It’s very clear that streaming is energising our growth,” Netflix chief Reed Hastings told analysts this year, reporting a record-breaking 2010 that saw the company pile on another 7.7 million customers to smash the 20 million barrier. Netflix used to be the US Post Office’s biggest single customer; today it is the internet’s biggest user in the US, grabbing 20% of peak downstream traffic.

With each subscriber paying $8 a month for an all- you-can-watch menu of recent blockbusters, golden oldies and obscure titles, Netflix has built up quite up a war chest with which to license those flicks. That 12-month jump in customers has added $738m in annual subscriber revenues to its coffers. Throw in the estimated $500m Netflix would save each year if it didn’t have to deliver DVDs and one can see why Hastings is keen on pushing internet-only subscriptions.

At stake is a subscription-TV business that will climb to a global $211bn by 2014, according to PricewaterhouseCoopers. Even Facebook is getting in on the act; its recent deal to showcase The Dark Knight anticipates a wider push into film distribution paid for by social networking credits.

Ever alert to others profiting from its own sweat, Hollywood studios are waking up to Netflix’s threat and charging more for content. In 2008, when Netflix negotiated a deal with the Starz network that gave it access to thousands of Disney and Sony titles, it paid $30m a year. By the time it closed a five-year licensing arrangement last year with Epix, the start- up pay channel that showcases movies from Paramount, Lionsgate and MGM, that figure had shot up to $200m. Once those deals lapse, you can be sure Netflix’s gross profit margins will evaporate.

The backlash continued in March when CBS’s pay-TV service, Showtime, decided to remove its first-run programming from Netflix’s streaming service. Days later, Starz introduced a 90-day window between the first broadcast of its shows and their availability on Netflix.

Netflix’s response to such challenges comes right out of the HBO playbook.

Instead of holding itself hostage to Hollywood’s negotiating clout, it is supplementing its movie offerings with original content that it can control. But not theatrically released movies. Netflix once dabbled as a film distributor, buying up US rights to 120 films, but that costly experiment ended with the realisation that teaming up with others to release films in cinemas was an unnecessary distraction.

A more effective tool for building subscribers is to invest in dramatic series – a tactic that has worked wonders for HBO, where The Sopranos, Sex and the City and Six Feet Under have helped cultivate audiences and enjoyed lucrative afterlives on DVD. Because of the risks, even HBO doesn’t commit to long-running series before seeing a pilot and how audiences react to an initial season. But Netflix created a stir this spring by snapping up two seasons – 26 episodes worth – of a US remake of 1990s BBC mini- series House Of Cards, to star Kevin Spacey. David Fincher, hot off The Social Network, will direct the pilot.

By acquiring ‘first window’ rights to this series, Netflix won’t be footing the entire $100m bill. But it’s a huge commitment, and one it feels it can justify because of a potent weapon its in armoury: data. Unlike typical networks that rely on blunt ratings to determine success, Netflix sits on a treasure trove of consumer information. “Through our algorithms we can determine who might be interested in Kevin Spacey or political drama and say to them, ‘You might want to watch this,’” says Netflix communications chief Steve Swasey. “We don’t have to spend millions to get people to tune in.” Of course, once the series airs, Netflix’s data will soon churn out a photofit description of the ideal House Of Cards viewer, removing some of the gamble out of film-making. If only you could do the same for Cannes.