Broadband Networking News  Mark Holmes 03/27/2001  Enron Hits Back Quickly After Blockbuster Failure Houston-based energy and communications conglomerate Enron's Enron Broadband Services unit signed a deal with Electronics Boutique earlier this month to deliver video games on demand in a bid to boost content offerings to its broadband customers as part of its entertain-on-demand (EOD) service.  Under the terms of the March 19 deal, Electronics Boutique subsidiary EBWorld.com will stream leading games for rental to Enron 's broadband customers. The deal is a positive development for Enron after the collapse of a deal with Blockbuster, which the companies announced March 9, that would have given Enron exclusive rights to deliver movies for a video-on-demand service.   "The exclusive relationship has not yielded the quantity and quality of movies needed to drive demand for this exciting new on-demand service," explains Kenneth D. Rice, president and CEO of Enron Broadband Services.  "The Blockbuster announcement was disappointing, but I do think the technology and systems to be able to do that are virtually complete," notes James Yannello, a utilities equity analyst at UBS Warburg. "I do think they will be able to potentially a deliver a variety of items to end-users. I would guess they need to do some more deals, driving traffic on [to] their systems. I think they can bounce back pretty quickly from the Blockbuster deal. I think the blow was more psychological and I would suggest it was used as an excuse for some others to lower some very aggressive price targets on the company, which is what they did."  The failure of the Blockbuster deal was a blow for the company as the exclusive 20-year agreement could have given Enron significant upside in the content delivery business.   "I don't see Blockbuster as being a broadband killer for Enron ," Bob Christensen, a utilities equity analyst at First Albany Corp., tells Broadband Networking News. "I think they will probably [get] one or two anchor tenants before the year is out. I am optimistic."  The deal with Electronics Boutique and the failure of the deal with Blockbuster emphasize the importance Enron is placing on securing content for its broadband network. Yet its main revenues from the telecom arena will continue to be derived from its bandwidth intermediation business, which uses pooling points to provide the physical interconnectivity between bandwidth buyers and sellers, allowing users to provide bandwidth on demand. This is Enron 's core telecom business.  The content deals, while important, are not being factored into most analysts' forecasts on the company.   "I am confident that the content delivery business will be successful," says Ray Niles, a utilities equity analyst at Salomon Smith Barney. "The fact of the matter is they did get another deal. It was not as large as the Blockbuster deal, but they did get another one in there. We are not putting numbers in our model and our earnings forecast for content delivery. Whether it is very successful or not very successful, in our forecasts, we are not assuming any particular forecast for the content delivery business. I think bandwidth intermediation is their competitive advantage."  "The reality is that no one had any earnings (from Blockbuster) in the company projections for several years at best," Yannello adds. "It was a big name and was portrayed to be the killer app. It is disappointing, but I do think they will be able to bounce back with other deals. I also think in an early sense this gaming announcement is probably the tip of the iceberg of what they will be able to bring in."  Enron, which produced revenues of over $101 billion in 2000 from its various businesses, is still rated highly by analysts, despite the failure of the Blockbuster deal.   "We have a $100 target price and a 'strong buy' rating," Yannello says. "That assumes roughly $75 of value for their energy business and $25 of value for their broadband services division. I think given what has happened in the broader market in the telecom arena, and given that the Blockbuster deal has falling apart, I think we be will waiting a while before we expand that $25 telecom valuation."