Blockbuster-Enron Deal Fades to Black

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Industry executives are reeling over the abrupt end of Blockbuster Inc. and Enron Corp.'s multi-year agreement to deliver video-on-demand services.

Both companies blamed the other for the breakup, which cable industry executives called a major setback for non-cable distributed VOD services. But those executives said the development isn't a knock on the viability of VOD over cable systems.

Designed as the video-rental giant's entry into the VOD business, Blockbuster and Enron had started a four-city trial of the service in Seattle; Portland, Ore.; American Fork, Utah; and New York. That trial is expected to close at month's end.

Blockbuster executives said the deal was severed because the home-video giant was uncertain of Enron's ability to deliver content via digital subscriber lines.

"It was [Blockbuster's] lack of confidence in Enron that killed the deal," Blockbuster spokeswoman Karen Raskopf said, although she would not address any specific problems.

Enron executives were singing a different tune, though griping about the content.

"The key decision to terminate the deal was that we weren't able to attract the quality and quantity of movies that can make this service valuable," said Enron director of public relations Shelly Mansfield.

Indeed, Blockbuster-like other cable and Internet-based VOD content providers-had failed to secure long-term content deals with the Hollywood studios. Blockbuster had VOD deals only with Universal Pictures, Metro-Goldwyn-Mayer Inc., Artisan Pictures and several independent studios.

Still, industry executives said the dismantling of the Blockbuster-Enron deal shouldn't dispel operators from their belief that VOD will become a viable business. With an infrastructure already in place and only digital upgrades required to deliver on-demand product, executives said cable's economics are far better in terms of delivering enhanced PPV services than a start-up like Blockbuster and Enron.

"It's clear to us that [Blockbuster and Enron] rushed into the marketplace," Intertainer CEO Jonathan Taplin said.
"It shows that for new companies trying to get into the VOD business, there is a barrier to entry."

In Demand vice president of corporate communications Joe Boyle said that while the company is "not exactly certain" what happened between Blockbuster and Enron, In Demand is certain that VOD over cable is a real business.

"We intend fully to support both our owners and affiliates as they continue to escalate their own VOD launches," he noted.

Encore Media Group vice president of subscription VOD Greg DePrez said that even Blockbuster's well-positioned and recognized brand name could not overcome the technological, financial and programming barriers faced in launching a standalone VOD service. He added that Blockbuster's $4.99 retail price for VOD movies failed to entice consumers, particularly since it was 20 percent higher than the company's charge for video rentals.

Nevertheless, DePrez believes Blockbuster will remain aggressive in the VOD arena. "They'll take safer steps to exploit their brand in a different medium like VOD," he said.

Raskopf said Blockbuster will remain "technology agnostic" with regard to VOD distribution and intends to remain open to relationships with all players.

Studio hurdles

Enron's Mansfield added that the company is also still bullish on the VOD business and would look to secure its own studio deals.

"Enron is still committed to delivering the service and we are happy with the results of the trial," Mansfield said, declining to divulge details.

But studio participation remains a major hurdle for everyone involved in VOD. Given its disappointing experience with the underperforming pay-per-view business, Hollywood has been very reluctant to sign long-term deals with any companies until all options have been explored.

Sources said some film companies are asking for a much higher percentage of the VOD revenue split than the 50 percent cut they receive from traditional pay-per-view buys. Some have asked for splits as high as 90 percent, a ratio similar to what Hollywood extracts from movie theaters.

Studio executives also maintain that VOD distributors would have to fulfill certain technical requirements, including security and copy-infringement concerns, before any long-term VOD deals are considered.

Though some studios have offered movies for VOD trials and commercial deployments on a system-by-system basis, others-like Buena Vista Television, Sony Pictures Entertainment and Paramount Pictures Corp.-aren't making any titles available.

At least one studio executive said the scuttling of the Enron deal would affect his company's relationship with Blockbuster. Universal Studios Home Video president Craig Kornblau told the home-video trade magazine Video Business,
a sister publication to Multichannel News, that the Blockbuster/Enron breakup "will clearly affect our VOD deal with Blockbuster, but we'll wait and see what their other VOD deal is," he said.

He intimated that Blockbuster held other VOD options, but was not ready to reveal the nature of any plans. Kornblau said Universal would look at any new plan to see if it met the studio's muster before deciding if it changes the deal with Blockbuster.

Warner Home Video president Warren Lieberfarb also told Video Business
there is "no reason not to look at" the Enron service more seriously, now that Blockbuster is out of the equation.

He said the fundamental problem with the Blockbuster-Enron deal was that the terms being offered were "uneconomic," due to the number of parties that had to be paid.

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