Some time ago I learned that Enron Corp. had set up an affiliated partnership code-named "Project Braveheart." This partnership concerned a video-on-demand venture that Enron had made with Viacom Inc.'s Blockbuster Video. Apparently, sometime in 2001, Enron projected about 10 years of profits from this as yet untested technology and sold these profits to a Canadian bank for about $120 million. Enron then "booked" this $120 million as income.
What follows is a bit of history concerning Blockbuster's and Enron's adventure in attempting to deliver VOD content to homes throughout America. Blockbuster, specializing in video rentals, sees its core business diminishing as a result of lower priced DVDs and the proliferation of pay-per-view opportunities deliverable by digital cable or direct-broadcast satellite.
Enron apparently controls an enormous fiber-optic delivery capacity that has been significantly under-utilized, since broadband deployment has been slower than previously anticipated.
About 18 months ago Enron chairman Kenneth Lay announced that one of his divisions, Enron Broadband, had entered into a joint venture with Blockbuster to deliver movies and other content to consumers over Enron's fiber-optic networks.
In early 2001, as a media consultant with Broadband experience, I contacted Enron Broadband chairman Ken Rice offering to assist them in obtaining content from studios, broadcasters and other copyright holders.
I was invited to come to Houston and meet with Rice and a variety of the Enron Broadband senior staff. All went well until my final meeting with a 30-something Harvard MBA (Let's call him Bob).
Bob asked me for my thoughts concerning the Blockbuster venture. I told him that I thought it would be very difficult to obtain major titles on an ongoing basis from the studios. Bob disagreed and told me that no studio could stand up to Blockbuster's industry clout and he was certain that they could get all of the titles they needed. We discussed many other aspects about Broadband and were in complete disagreement on everything. The meeting ended poorly and I returned to Los Angeles that night.
I thought at that time my disagreements with Bob were honest and reasonable differences of opinion. Looking back, I think it reasonable to assume that Bob didn't want a knowledgeable media person who would advise certain people as to the inappropriateness of the $120 million bank transaction involved in the project.
The Blockbuster venture was in a test phase with about 1,000 homes utilizing an unproven technology in a marketplace that did not yet exist. Enron also failed to consider the competing technologies that were also trying to enter the same VOD market. Also, Enron did not acknowledge that studios and other copyright owners were interested in retaining as much of the profitability of VOD delivery and would never agree in sharing these profits with either Enron or Blockbuster.
Predictably, studios have subsequently entered into their own VOD ventures with Paramount, Warner Bros., MGM, Universal and Columbia in one group and Disney and Fox in another.
In my over 40 years of entertainment industry experience, I have never seen as questionable a transaction as the one entered into by the Canadian bank with the Enron venture, "Project Braveheart." Some may consider this an over zealous group being overly aggressive about a new venture, but I would see it as a monstrous transgression that should never have been countenanced by anyone at Enron or its auditors.
Norman Horowitz was president of Columbia Pictures Television Distribution Company, Polygram Television and the MGM/UA Telecommunications Company, as well as a CBS/Viacom executive.
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