An End to Enron's Broadband End Run3 Dec, 2001 By: Stephanie Prange
Enron's filing for bankruptcy last weekend caps a dramatic turn of events in the broadband and video-on-demand (VOD) arena.
Being in the packaged media business, our industry can't help but gloat a little.
In July 2000, Blockbuster Inc. and Enron entered into a 20-year deal to deliver VOD. John Antioco, pictured next to a grinning Kenneth Lay (Enron c.e.o.) in Video Store Magazine's front page article, said at the time: "This is the ultimate bricks, clicks and flicks strategy."
It seems unfair to pick on Big Blue for linking its fortunes to a company many thought could do no wrong. Heck, analysts swooned and Blockbuster's stock jumped. Enron's shares hit an all-time high of $90.56 right afterward (now a share wouldn't even buy you a latte at Starbucks).
To its credit, Big Blue had the sense to end the partnership soon after. Blockbuster in March 2001, just 10 months after inking the deal, pulled out. Enron said Blockbuster hadn't followed through on getting the content and Blockbuster said Enron wasn't cooperative in resolving delivery issues, among them encryption.
However, indie retailers not dazzled by the ins and outs of Wall Street seemed to clue in a little earlier. As analysts praised that July deal, retailers were notably silent. In another Video Store cover article (July 30-Aug. 5), retail veteran Mark Vrieling noted many retailers seemed unclear on what to make of the agreement. "There haven't been enough details released yet and, frankly, I don't know enough yet to comment on it," he said.
Apparently, that's where the devil was. If Wall Street analysts had been a little more clear on the details of Enron's various plans, its investors wouldn't be in such a predicament.
Now, speculation is that Enron will sell its money-losing Broadband Services unit. The company has sued yet another broadband deal partner, Microsoft. The software giant's MSN high-speed Internet service broadband rollout, with Enron's assistance, is going slower than planned and Enron points the finger at MSN for not holding up its end of the bargain (sounds familiar).
In addition to its fancy financial dealings, analysts say Enron's departure from its core energy business is in part responsible for its downfall. The big video chains seem to have learned that lesson. Blockbuster is pulling out of Web rentals and its awards show, and Hollywood Entertainment Corp. is retrenching after the collapse of Internet venture Reel.com. Both are embracing packaged media again, especially DVD.
If video chains ever look into the brave new world of movies on demand again—and, if it comes to fruition, I hope they will because they've got more business there than any energy company—let's hope they do it with an eye toward the details. Smoke and mirrors may give a company's stock a quick rush, but it's often followed by a crash.