Enron Corp. - University of California | Office of The President

told EBS it would need to spend $1,200-$1,600 per subscriber for equipment to get the VOD to
work.
524. The only solution Enron had come up with by late 00 was to load 40 movies on to a
Sun Server at each major market location. Then subscribers would have to wait to be downloaded.
A set-top box was required and it was a far cry from VOD for anything in Blockbuster's inventory
as had been promised. Moreover, by 11/00, the reality was that the Hollywood studios did not want
to give DSL-quality content to Blockbuster. At year end 00, there were only test systems in four
cities and the most subscribers (many of whom didn't have to pay) the venture ever had was 1,000
in 3/01.
525. Enron should not have recorded any revenue from the Blockbuster deal because:
(i) Braveheart was not independent of Enron; (ii) EBS had not earned the revenue it monetized as
there was no way EBS could even provide the service it promised; (iii) the revenue was not
realizable (collectible), as most of the customers did not even exist yet and were not likely to pay for
the service, and certainly not earned at this point. See FASB Statement of Concepts, No. 5, 83-84;
and (iv) EBS improperly used mark-to-market accounting because there was no reasonable basis to
estimate future revenue streams.
526. By 3/01, Blockbuster terminated the deal. However, Enron did not write off the
improperly reported income until the 3rdQ 01 when it recognized $110.9 million in losses from the
Blockbuster deal.
(2) Broadband Trading and Dark Fiber Swaps –
Inflated Accounting and Valuation
527. Enron also manipulated its results through broadband trading and dark fiber swaps.
Dark fiber is fiber optic cables which had been laid but was not yet "lit," or not yet in use. Enron
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