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Video no demand

Blockbuster, Enron call it quits on VOD joint venture

By Ken Kerschbaumer and John M. Higgins -- Broadcasting & Cable, 3/18/2001 7:00:00 PM

There's a letter missing from Blockbuster Entertainment's video-on-demand efforts. It's "P," as in "Paramount."

For all its intimate relationships with movie studios and its willingness to bludgeon them into submission, the video retailer was unable to secure film rights from fellow Viacom subsidiary Paramount Pictures.

The absence of Paramount films from the slate of available titles not only helped doom Blockbuster's Internet-based VOD venture with power company Enron but also highlights the problem everyone is having with VOD: Studios worried about their relationships with video retailers are hesitant to grant favorable windows to Blockbuster, cable operators or anyone else.

But media executives and analysts say the end of the Blockbuster/Enron venture doesn't necessarily signal that cable's VOD plans are headed for a similar train wreck. "This wasn't a very smart deal to begin with," said Sanford Bernstein media analyst Tom Wolzien. "Nobody has a network to the consumer here, and Blockbuster couldn't get the movies."

Cable's VOD plans are a direct threat to Blockbuster's core video-rental and -sales business. The company is trying to recast itself as a media distributor rather than merely a retailer.

Blockbuster and Enron initiated a "20-year partnership" last July, saying that they would create a central platform to sell movies on demand over high-speed Internet systems. Blockbuster had the brand name and relationships with studios dependent on the chain to move home video. Enron had a high-speed backbone and could set up servers. Local DSL providers would connect customers to a special set-top box that would decrypt the movies.

Plans called for the exclusive arrangement to offer consumers the ability to choose from among 400 to 500 movies and have the movie delivered to a set-top box on their television via DSL. At the time the deal was announced, Steve Pantelick, Blockbuster senior vice president of strategic planning, said talks with studios for content were under way. "We've spent some time with the studios, and they see the merits of what we're doing," he explained, "so it's just a matter of wrapping up discussions."

Since then, though, the deals that were made have left Enron feeling somewhat less than satisfied. It was time to see other people. "From Enron's standpoint, the main reason for discontinuing the relationship had to do with content," said Enron spokeswoman Shelly Mansfield. "We just felt that, through the exclusive relationship, we weren't able to attract the quality or quantity of movies that is necessary to really make this service thrive."

There were studios signed on: Universal, MGM, Artisan, Columbia TriStar and Lions Gate. "But most of the movies were not new releases," Mansfield added. "They were older, and there wasn't a wide selection available." Blockbuster could not even use family connections to bring Paramount on board for windows even long after the titles hit the video store. And to get rights for Vivendi/Universal titles, Blockbuster CEO John Antioco bragged last month, he threatened to keep one of Universal's teen movies, Bring It On, off Blockbuster's shelves.

Enron is still moving forward with trials of the service in Portland, Ore.; Seattle; New York; and Salt Lake City, said Mansfield. DSL providers Verizon, Reflex and Switchpoint Networks are involved in the trials, which will be completed by the end of the month and are going well, according to Mansfield.

"Enron is committed to this venture," she said, "and we're going to expand the entertainment-on-demand service, seeking additional content providers and other relationships. We're in talks with the studios directly."

Jupiter Media Metrix analyst Lydia Loizides said she isn't surprised at what happened with the deal: Hammering out deals with studios is moving from a technical issue to one of money. "How much is the consumer willing to bear in terms of cost?" she asked. "If it costs a content owner or aggregator millions of dollars to license this content in order to distribute it, where will those costs be recouped, and how long will it take? I can't go from charging $4.99 to $9.99 because that takes me into a PPV model, and that's not compelling enough."

Studios may still be dubious about the security of technologies like broadband, she adds. "How they control streamed video in terms of different boxes that have hard drives is an issue. CNET.com has a hacker site that will tell you how to open the second tuner on your TiVo box."

TV-NEWS SITES/February 2001, Ranked by unique visitors per month/Source: Media Metrix

CABLE-TV SITES/February 2001, Ranked by unique visitors per month/Source: Media Metrix

Unique Visitors: The number of total users who visited the reported Web site or online property at least once in the given month. All unique visitors are unduplicated (counted only once).

* Represents an aggregation of commonly owned/branded domain names.

-Statistically insignificant traffic.

Chg.: From January 2001 to February 2001.

Note: Sites categorized by BROADCASTING & CABLE .

NA: Comparison with previous month not available.

Sample Size: More than 60,000 nationwide.

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