Tuesday, April 7, 2015

Streaming Movies- In 1999!

Netflix has built a successful business out of providing streaming video to its subscribers, eliminating the need to trudge out to a physical location to get the latest DVD. However, this modern miracle wasn't the first attempt at starting such a service; Enron and Blockbuster attempted something similar way back in 1999.


Back in the late 1990's, Enron and Blockbuster were flying high. However, Wall Street soon became infatuated with Dot Coms and the two companies were faced with stagnating stock prices. Enron was desperate to get some of that Dot Com attention and found it in the most unlikeliest of places- Portland General Electric.

When California governor Pete Wilson signed energy deregulation into law, Enron wanted to be the first to take advantage of this new opportunity. (As the world would eventually find out, Enron's tactics in that venture proved to be illegal.) The company snapped up Portland General Electric and began making plans to sell off the parts of the company it didn't want- like the company's broadband division. With the Dot Com explosion, however, broadband became a hot business. Enron put the brakes on a sale and sat back to figure out a way to make Wall Street take notice of Enron's potential to be a player on the Internet. They decided to do this by setting up a movie streaming business with Blockbuster.

Blockbuster was still clinging to its outmoded video rental model, but was looking for a way to hitch itself to the "new economy". Why not join with a respected company like Enron to do so?

Enron and Blockbuster made a splashy announcement that was greeted to cheers from Wall Street. Nobody bothered to do their due diligence, however. If they had, they would have found out that Hollywood was unsure of this new technology and Enron's own programmers were doubtful that they could do what Enron was claiming.

Several problems stymied the venture- first of all, movies took hours to download. One could drive to the video store, rent a film, take it home to watch it then drive back to the video store to return it- and Enron's system would still be downloading the movie. The company took to storing certain movies from its catalog on the set top boxes to speed things up. Another problem was Hollywood's ambivalence at signing onto such a system. The only content Blockbuster brought to the project were creaky films and documentaries that even Ed Wood would find amateurish. The first returns from the test markets were so bad that Enron employees openly mocked the lack of profits. Yet Enron claimed hundreds of millions in phantom profits.

Blockbuster eventually pulled out of the project, citing Enron's inability to deliver on its promises. Enron blamed Blockbuster for not getting good content. The failed enterprise left behind millions of useless set top boxes and hundreds of millions of dollars in losses. The success of Netflix has led some Enron apologists to claim that the company was just ahead of its time. However, Enron's outlandish claims were not something they said could be done in the future; they insisted that they already had the technology running back then- something that was definitely not true.

In the end, Blockbuster limped on, as Redbox, Netflix and Apple TV nibbled away at its business. Perhaps because of the collapse of this deal, Blockbuster rarely tried to innovate or save itself by embracing new technology. It quietly ceased operations in 2013.

Of course, Enron collapsed in 2001 when its sham profits, malfeasance and illegal acts were finally exposed. While the company was scamming west coast electricity buyers out of billions, it was burning through most of that cash creating businesses that were only supposed to look profitable to keep the stock price up. The TV streaming business was just one of Enron's many lies and fabrications. In an odd postscript to this story, it seems that Enron never got around to actually billing its customers for the movies they watched.  Not only was the streaming business a failure, so was Enron's billing system.