Enron's small-screen test

Allies with Blockbuster, DSL providers to offer video on demand You can talk about delivering applications over broadband or multimedia Web content, or on-line games. But for pure killer credentials, analysts say, nothing will beat being able to send full-length, full-motion, full-screen video over the network on demand. That now seems more possible than ever: Improved digital encoding technologies, falling prices and shrinking footprints for video servers are making the storage and streaming of hundreds of titles possible from local hubs.

Cable providers long have been interested in video-on-demand (VOD), primarily as a bulwark against the encroachments of direct broadcast satellite providers. Several cable operators now have systems in tests.

And if cable operators are interested, you can bet that DSL providers are not far behind. They're also banding together to offer VOD. In July, network provider Enron Broadband Services, a subsidiary of Enron, partnered with Blockbuster in a 20-year exclusive deal to sell video titles on demand over its national broadband network by the end of the year.

Enron will deliver the movies to consumers' PCs or TVs via DSL through last-mile relationships with Covad Communications, Qwest Communications International, SBC Communications, Telus and Verizon.

Blockbuster is trying to stay relevant in a world that threatens to quickly outpace the VCR and the DVD player. In January, the company struck a deal with digital video recorder company TiVo to deliver its top 10 movies directly into the storage of TiVo units. In May, Blockbuster also signed a deal with DirecTV to offer pay-per-view movies to subscribers of the satellite service.

"We believe that VOD has the potential to be a $3 billion market in five years, and we don't see why we can't have a 35% to 50% share of the market," said Blockbuster CEO John Antioco.

Although Enron has rolled out one of the most advanced fiber optic networks, it has yet to offer any services more attractive than streaming media and videoconferencing, said Ron Barone, an analyst for PaineWebber. "Signing a Blockbuster is reassurance of the validity of their strategy," he said. "If the service comes together - and much remains to be done - it could put them in the VOD lead."

But first, the system must be designed, tested and implemented. Among those tasks, obtaining the rights to re-broadcast video is only the beginning - but it's important. Hollywood studios are more skittish than ever about copyright issues, piracy and possibilities of Napster-like swapping of video files.

As to the technology, architectures still are being drawn up and equipment deals signed, but some elements have been decided. As part of this agreement, Enron will encode and stream the movies over its network and store them on servers, both in locations managed by Blockbuster and in the central offices of the last-mile affiliates.

In September, Enron signed a deal for a video streaming platform from nCube that will let viewers pause, fast forward and rewind digitized video. nCube also will provide its nABLE suite of back-office management tools.

The back-office suite - for billing, service provisioning and digital rights management functions - will be built to an open standard to accommodate the integration of legacy systems from providers such as SBC, said Ian Johnstone, chief operating officer for nCube.

But plenty of other questions remain to be answered. The service will require subscribers to buy or lease a set-top converter box, but will consumers be willing to add another unit to their already overloaded home entertainment centers?

Marketing issues will center around pricing, which remains to be determined. Antioco expects the service will cost about $5 per movie ordered - a premium to video rental prices, but justified, he said, by the added convenience of receiving entertainment directly to the home. But consumers already get movies in the home for $4 or $5; it's called pay-per-view. Block-buster says the ability to order a title rather than having to wait for a preset start time will be its advantage.

Finally, there's the question of how quickly Enron's last-mile partners will be able to get broadband connectivity to most of those 65 million Blockbuster subscribers.

"The idea will be to get this service scalable fast - not simply to have a handful of subscribers in every market," Barone said. "Recently, the DSL providers haven't exactly performed to projection on their installations. Current estimates are that about 5% of U.S. homes have broadband services of any type, and that number should reach about 25% by 2003. That's not an overwhelming installed base for Blockbuster to sell to."