Energy company Enron enters media business

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Enron Corp. is known mostly as an energy concern, so an executive from the company seemed out of place on a media panel at the Association of National Advertisers conference in Dana Point, Calif.

But that's exactly why he was there; Enron doesn't want to appear out of place in the ad business and used the meeting to unveil its controversial move into the media business.

Enron's plan, which essentially creates a forward market for media buying, drew fire from some critics who said it treats media as a commodity. Others said that despite initial resistance, they believe Enron has a shot at transforming how advertising is bought and sold.

Enron is starting out in the spot TV market but eventually plans to move to other media platforms, including print and the Internet. Enron's plan promises guaranteed long-term pricing for both the buyer and the seller of TV time using traditional stock market financial derivatives, such as options, "calls," and "puts," to allay risk. Essentially, media would be traded in much the same way pork bellies, crude oil and treasury bonds are.

"There's a better way to buy media and manage risk," said Edward Ondarza, VP-media services at Enron, during a panel discussion (moderated by Advertising Age Editor Scott Donaton).

A RESELLER

Mr. Ondarza said Enron may buy and resell inventory -- an idea media sellers loathe. He was leery of using the word "reseller," however, noting that the earliest stage of market making is a "sensitive time because people are not normally comfortable with something different." But he added that Enron's media group will be able to guarantee prices for both the seller and buyer for up to three years through "structures media buyers haven't historically provided."

Mr. Ondarza said Enron has already cut some deals directly with local stations and advertisers, but he declined to identify them.

Critics were quick to point to flaws in Enron's plan.

"You can't treat media as a commodity, ignoring content and creativity," said panelist Edward Erhardt, president-customer marketing and sales for ESPN/ABC Sports. "We'd be concerned about what Enron is proposing," he said in noting ABC has a "no resale" rule.

NEGATIVE RESPONSE

Mr. Ondarza acknowledged that major TV sales rep companies have already responded to Enron's plan "negatively."

"It sounds good that a station is a guaranteed income," said Jack Oken, president of TV sales rep MMT Sales, "but that isn't what they really want. They want to grow their income. Enron's model is not to grow that income."

Media buyers also questioned whether a third party is needed in a relationship-driven business where buyers and sellers often mitigate risks for each other in the long term.

"There's more to a relationship between TV station and advertiser than just a commodity of spots," said Cathy Crawford, president of national spot for Initiative Media North America, Los Angeles. "It's called non-traditional revenues, promotions, it's called the relationship. That doesn't occur in a commodity trading business."

Enron's move into media is the latest in a series of distribution moves. Since 1997, it has set up a brokering system for commodity sales of pulp and paper. Earlier this month, it entered into a licensing agreement with InterTrust Technologies Corp. and Blockbuster Video to deliver movies on demand via Enron's broadband network.

Enron last week reported strong third-quarter earnings. Much of the growth was attributed to EnronOnline, a Web-based platform that trades in such areas as electricity, natural gas and pulp.

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