Enron's Advice For the Media Industry

November 5 2007 3:15 AM PST

By Jack Myers

Speaking from the Grave… When Enron Seduced the Media Industry: In early 2000, high-flying energy, pulp and paper company Enron had been meeting with media executives to introduce their hedge model to the advertising industry. Their team had met with much scepticism and a wary but positive reception. The Enron scandal was still months away from unfolding when Jack Myers Media Business Report hosted the industry's first forum on media buying and selling exchanges. Following are excerpts from the presentation made that day by Edward Ondarza, the Enron executive who was spearheading the company's foray into the media industry. I leave it to you to form your own judgements about the validity of Enron's propositions and how many of their proposed services are either being instituted today by others and/or would be more viable in today's media climate.

Jack Myers: "Edward Ondarza leads Enron Media Services and there are a lot of questions in this industry right now about what is Enron doing in the media business. Enron Media Services is a subsidiary of Enron Broadband Services, and I won’t even try to explain, Edward, what you are doing in the media industry, given your experience in the pulp and paper industry, but when we met a few weeks ago, you actually did an excellent job of explaining to me the compatibility between pulp and paper, oil, petroleum and media. And I, for one, am fascinated to learn more about that."

[Read the full transcript of Enron's Advice to the Media Industry at www.jackmyers.com]

Edward Ondarza: "I am sure many people are shaking their heads when he’s talking about pulp and paper, and crude oil and media. But let me start off with just the three things that I wanted to accomplish. One, give you a broader perspective of who Enron is and what we do. Two, very importantly, talk about what we are not doing in the media business, because I think that this is one of the problems that has existed for us with the press that has come out and just gossip in the market about what we are doing and what we are not doing. And then third, just give you a quick perspective of the types of transactions and the focus that we have in this [media] marketplace. …

Let me talk about what we are not, and then I will get back into what we are, because I think that’s very important because of the misconceptions. We are not an online exchange, to start off with, but we will have these financial products on an online market at some point time. Nor are we a physical broker or a reseller of time and I think that’s what most people perceive as us being today. What we are not doing, we are not going to ABC or The Wall Street Journal or to a magazine or to a radio station saying here’s a hundred million dollars from Enron, and for this hundred million dollars, I get a call on your physical inventory, and I’m going to go stand on a corner out here in New York and talk to all the advertisers and try to sell them components of your inventory. That is not what we are doing. Nor are we trying to compete on a price basis head-to-head for a show. We are not standing out and saying we have a [Who Wants To Be a] Millionaire on Tuesday nights at 8 pm at 10,000 dollars cost per point; that is not what we are doing. When we are going to the owners of advertising, we normally have an advertiser. We are going and saying our customer is Enron or Coca-Cola, or Ford, this is what they are interested in buying and we negotiate the price for what those companies are interested in buying. Then what we do is we sit down with the seller of this media and we say ok, how do you want to structure this? How do you want to sell it? Do you want to sell it on a fixed price basis, or do you want to sell it on a floating price basis, or a combination? Do you want a floor embedded in that, or do you want it again floating? How do you want to receive the stream of revenue? We sit down with Coca-Cola or Ford and we do the same thing. Do you want it on a fixed price basis? Do you want it on a floating price basis? And what do you want that revenue stream to look like? We even have financial structures that will finance advertising budgets over periods of time. Now many people say, well how do you do that, does that work, is it legal, does it work with any of the FCC rules? And the answer is yes. We spent a lot of time with the accounting agencies and with our regulatory individuals researching all the different products that we are offering.

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Enron on Working with Media Agencies

Question from Jack Myers. "I am sure there are some in the audience who would prefer not to applaud for what you are doing, but what happens to the media buying service? We have a panel coming up in a minute of media buyers, what’s your relationship with them?"

Answer. from Edward Ondarza: "Sure, obviously they will still exist and still do very well. I think in some situations the media buyers view us as a competitive threat, when we are actually doing the physical execution of media, and in fact we have met in Houston with several and we have visited several of the companies here in New York and Chicago, and LA, about how we can, to some extent, co-exist. Because there are products and services that we can lend to everyone that are just financial in nature, and as we have, the media buyers may not like this, the way I am putting this, but as we have, in other markets, brokers who bring us transactions. Enron, yearly, pays around 600 million dollars to brokers in the energy markets, in the pulp and paper markets, in the credit markets and every market we exist in. We believe that we are able to co-exist with the media buyers and pay them a brokerage’s fee for any transactions they work on with us, and that we help structure together."

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Enron on Advertising Agencies

We are not an advertising agency. We will never be involved on the creative side or the media planning side. We are strictly focused on the execution of media, the financial component. And the way we like to look at this business, this is very much about advertising, there is no question about it, but what we are here to do, is to affect the financial performances of the individual companies, using advertising as ad medium. By using different financial structures and risk management tools to enable the companies to perform better financially. At the end of the day, that’s why we are all here. So we can all help our companies do better financially and that’s what we focus on, no matter what business Enron’s involved in. And then the thing that I am sure will come up throughout the day, is the commoditization of advertising.

Read more of Enron's Advice for the Media Industry at www.jackmyers.com.

Enron on the Commoditization of Advertising

Enron on Media and Advertising Agencies

Enron and the Media Barter Business

Enron on Interactive Television

Enron on TV Ratings

Enron on How The Media Deal Was Going to Work

Enron and Media Risk Management

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