Report From Enron Country30 Dec, 2002 By: Stephanie Prange
Over the holidays I visited family and friends in Houston, otherwise notoriously known as Enron country.
On the front page of the Houston Chronicle Dec. 29 was a story outlining a fraud investigation of Enron's broadband business. A grand jury is investigating whether Enron executives' broadband cheerleading, including their claims about the company's deal with Blockbuster, constituted fraud.
Some of the evidence outlined in the case is eye-opening. According to the Chronicle story, the deal with Blockbuster was inked before it was determined whether delivery of movies on demand under the plan was technologically feasable. Tests took place after the deal and included such mishaps as set-top boxes that occasionally caught fire! The cost of the service was also a problem as the company had trouble getting the price of the boxes under $1,000 apiece -- and that was on top of a $150-per-month charge for the service!
Another hangup, according to the article, was Blockbuster didn't have digital rights to films, and, unbeknownst to Enron, was a pariah among the studios.
"Blockbuster was widely hated by the studios, so they weren't the best partners," according to a Chronicle quote from a former Enron Broadband Services finance employee.
As was many a strategic move during the late technology craze, much of the Enron-Blockbuster deal was smoke (sometimes fire!) and mirrors designed to boost stock and impress analysts.
Following the fad of the moment, Blockbuster struck what proved to be a silly deal. I only hope the chain isn't taking a short-term, fad-of-the-moment view about the DVD business, putting too many eggs in the sellthrough basket. Blockbuster abandoning the rental business would be like -- well, it would be like a water company buying a studio.