Blockbuster, Enron plan movies via DSL

Though they will begin with movies, Enron (ene) Chairman Kenneth Lay said the partners will likely expand the service to offer music concerts, video games and other forms of entertainment.

The venture, which still needs to address many critical issues, will compete most directly with the pay-per-view services offered by cable-TV companies and satellite broadcasters, such as AT&T Corp. (t), Time Warner Inc. (twx) and the Hughes Electronics Corp. unit of General Motors Corp.

Enron and several other big energy companies, such as Williams Cos. of Tulsa, Okla., have spent billions of dollars building fiber-optic networks, often using utility rights of way. But this is the first time one of these companies has shown it intends to become a major player in the delivery of entertainment and services into the home.

"It confirms the tremendous inroads Enron has made into the telecommunications business," said Steve Fleishman, utilities analyst at Merrill Lynch Global Securities.

Enron's coast-to-coast fiber-optic network, built mainly to service corporate customers, will form the backbone of the system. Using Blockbuster's (bbi) movie inventory, Houston-based Enron will initially encode some 300 to 500 movie titles and hopes eventually to expand to 7,000 to 8,000 titles. The movies will be "streamed" to local telecommunications companies, which, in turn, will deliver them into customers' homes via digital subscriber lines. These DSL services are now marketed primarily to households wanting high-speed Internet access. Unlike existing video-on-demand services, viewers will be able to pause and even rewind the movie they are watching.

Analysts say the venture could help Enron build traffic on its broadband network, in which the company has invested $600 million, and should give Blockbuster an additional weapon in its attempt to move into the digital age with electronic delivery of movies.

Blockbuster, a publicly traded unit of Viacom Inc., has already entered into an agreement to sell DirecTV in its stores and is experimenting with Internet-based movie delivery in partnership with film studio Metro-Goldwyn-Mayer Inc. For the phone companies, the enterprise will provide something glitzy to sell in addition to the basic monthly fee they charge for the DSL service. Enron and Blockbuster will partner with SBC Communications Inc., Verizon Communications, Qwest Communications International Inc., Covad Communications Co., Telus Corp. and ReFlex Communications Inc.

"This will make DSL far more attractive to consumers," predicted David Gallemore, executive vice president for SBC Communications in San Antonio, which owns Southwestern Bell, Pacific Bell and Ameritech. He said market research shows consumers want instant access to movies, more than any other feature. Still, there are plenty of details to be worked out. The partners haven't decided where they will offer the service first. Right now, they are combing market data to see where acceptance of the service might be highest. That means examining data on DSL penetration and Blockbuster video rentals, then trying to figure out how much money consumers will be willing to pay for the convenience of getting movies electronically. The companies claim the movies will be "VHS or better" in terms of their quality.

While the actual pricing hasn't been set, Blockbuster Chairman John Antioco said it likely will be around $5 a movie. Consumers also will need a set-top box that could be rented or purchased from one of the partners. Some 65 million Americans have Blockbuster rental cards and most rent 30 or so movies a year, said Antioco. "But many people rent more than 100 films and we will market this service directly to our customers who are heavy users," he said.

So far, the existing DSL market isn't that big -- about 4% of U.S. households have it -- though it is growing rapidly.

-- Erin White contributed to this article.