I am Hollywood

[Chapter 1101: Mini Music Store]

Los Angeles, Firefly Studios.

In an office within the executive suite, Edgar Bronfman, CEO of Seagram Group, and Doug Morris, CEO of Universal Music, gathered around a machine that resembled a bank ATM, intently listening to an engineer from Firefly Electronics explain its purpose.

This so-called "ATM" was actually a digital music sales terminal, which Firefly Electronics had dubbed the "Mini Music Store."

The machine was a delightful surprise for Eric, who had attended Firefly Electronics' annual meeting just days earlier. Last year, he had approved the development plan for this digital music sales terminal, but it had only been less than a year since its inception. Moreover, knowledge of similar digital music vending machines had not been part of his familiarity in this time; therefore, he hadn't paid much attention to the initiative.

However, upon seeing the prototype presented by Firefly Electronics a few days ago, Eric had indeed been amazed. The machine implemented Firefly Electronics' capacitive touch technology, featuring no physical buttons at all -- everything was controlled via a touchscreen. Furthermore, the internal chips and operating system were also independently developed by Firefly Electronics, building upon the tablet computing technology accumulated by the company.

Eric found the market research results for the Mini Music Store compelling, heightening his interest in the device. Historically, MP3 players gained momentum around 2005 when Apple opened the iPod to connect with Microsoft's Windows operating system, sparking explosive growth in the MP3 player market. By that time, the internet penetration in Western society was sufficient to support users downloading digital music from their personal computers onto MP3 players.

However, in the present, the total number of internet users worldwide was still under two hundred million, with over half of those concentrated in North America, which had a population of about three hundred million. The remaining five billion people had fewer than one hundred million internet users. This scale of internet users was far from enough to fuel explosive growth in digital music players.

This situation had already manifested itself in the previous year. When the second-generation Fireflyer player was released simultaneously in North America and Europe, at first, the shipments in European countries were on par with those in North America. Yet, in the following months, due to the limitations of personal computer and internet user numbers, the pace of shipments of Fireflyer players in Europe had visibly slowed down. Throughout 1998, out of the total of 19.7 million units shipped, only 7.7 million units were accounted for by Europe's population, which was twice that of North America, while the remaining 12 million units were consumed in North America.

The main reason for this disparity was that many European consumers lacked accessible channels to copy or download music for their Fireflyer players, significantly dampening their interest in purchasing digital music players.

While various countries were striving to invest in their respective information industries amid the tech wave in North America, Firefly Electronics clearly could not wait for the entire market to develop its own basic hardware infrastructure. Thus, creating convenient access for users to acquire digital music became a pressing issue for Firefly Electronics.

It was foreseeable that even with the current launch, within a few years, as personal computers and the internet became further widespread, the Mini Music Store would eventually be phased out like public payphones. But as long as this digital music sales terminal was successfully adopted by the market, there was no doubt that Firefly Electronics' Fireflyer player would attain a market advantage that competitors in the digital music player industry would find incredibly difficult to match.

However, the biggest challenge to promoting this device lay in music copyrights.

After all, while Firefly Electronics could privately allow and even encourage users to crack their Fireflyer players to download free music via bootleg CDs or pirated websites, they could not openly endorse such actions. Thus, this digital music sales terminal could only sell legitimate digital music through Yahoo Music Store.

Though over the past two years, the scope of music copyrights that Yahoo Music Store had available for sale had been continuously expanding, the major five record labels still granted very few licenses to Yahoo Music Store. Without resolving the content issue for the digital music store, broad promotion of this device was bound to face numerous obstacles.

...

In the office, after finishing the engineer's detailed explanation of the user login, selection, and payment processes, Doug Morris, CEO of Universal Music, was the first to speak up. "There's still a crucial question. I noticed you made a purchase through a Yahoo account, but what about users who don't have one?"

"Mr. Morris, we do have a solution for that," the engineer from Firefly Electronics replied. "You see, there's also a point card purchase option. Our plan is to place many of these devices in supermarkets, subway stations, and other busy areas. Users can simply purchase a point card from nearby shops, and by using the temporary account password provided on the card, they can buy music. The principle is similar to prepaid phone cards."

Doug Morris nodded, glancing subtly at Edgar Bronfman beside him. Although his face displayed no specific expression, inside Doug Morris was completely astonished. The rapid promotion of the Fireflyer player had already taken traditional portable music player manufacturers and the major record companies by surprise. He sensed that once this digital music sales terminal was widely adopted, it would completely disrupt the current structure of the record industry.

Meanwhile, with access to both the Fireflyer player and the digital music store, Firefly Electronics' influence over the entire record industry would expand exponentially.

At that moment, Doug Morris's first thought was that Universal Music needed to either develop an exceptionally close partnership with Firefly Electronics to gain a more favorable position in the upcoming dramatic industry shift, or firmly resist Firefly Electronics' plan, exhausting all efforts to preserve the original order of the music industry.

From the perspective of a competent professional manager, Doug Morris favored the former option.

With the rise of the internet industry, the entire record industry's performance had already declined due to the impact of internet piracy last year, indicating that significant changes were inevitable. Sticking to conventional methods would only lead to downfall.

While media and record companies criticized the Fireflyer player for promoting piracy, Doug Morris knew full well that the Fireflyer's influence on piracy had yet to reach the extent typically portrayed by the media.

The record industry's impact was ultimately rooted in the rise of the internet, as most pirate users seemed more inclined to download free music resources from music websites and then burn them onto CDs to play on traditional music players. Statistics revealed that in 1998 alone, over 130 million blank CDs were sold in North America, which was more than five times the sales of the Fireflyer player.

Compared to the average price of $20 for a legitimate record, the cost of blank CDs was less than $1. Furthermore, there were no channels to curb such piracy. Ironically, while the Fireflyer player was often criticized as an accomplice to piracy, it could actually be a platform that redirected internet digital music from pirated sources to legitimate ones.

Yet, although Doug Morris had a series of considerations stirring in his mind, he knew he couldn't make unilateral decisions; everything depended on Edgar Bronfman's thoughts.

...

Meanwhile, Edgar Bronfman hadn't expressed any doubts. After pretending to reflect for a moment, he finally asked Eric directly, "Eric, how many of these machines does Firefly Electronics plan to launch into the market?"

Doug Morris instinctively felt like putting his head in his hands upon hearing Edgar Bronfman's question.

What kind of question was that? The number of machines Firefly Electronics planned to deploy shouldn't concern Universal Music at this stage. They should be more focused on how to collaborate with Firefly Electronics!

Eric remained patient, smiling as he replied, "The first batch will consist of 10,000 units, which we will install for testing primarily in Europe. If the results are promising, the deployment scale will rapidly expand."

While he felt this question was inappropriate, seeing Eric Williams' response, Doug Morris began making quick calculations in his mind. Ten thousand units.

This figure didn't seem high at all; in fact, it was quite low. London, an international metropolis with a population of six to seven million, might not even have enough with 500 machines to achieve adequate coverage.

Additionally, in Doug Morris's view, digital music sales terminals should particularly focus on second- and third-tier cities. The penetration of personal computers and the internet was often very high in first-tier cities, while second and third tier cities had sufficient consumer purchasing capacity for digital music players, but they might not possess the necessary hardware and software to access online music.

There were thousands of cities throughout Europe, not to mention smaller towns. With 10,000 machines spread across thousands of cities, each city wouldn't receive even ten units; they might have fewer than banks' ATMs.

Of course, these weren't issues Universal Music should concern themselves with -- at least not for now.

Noticing that Edgar Bronfman was about to speak again and apprehensive he might divert the discussion, Doug Morris hesitated for a moment but still interjected, "Eric, we all understand your intention in showcasing this machine, so let's talk about your thoughts."

Eric nodded, gesturing towards the nearby couch. After they all sat down, and he instructed the secretary to bring in coffee, he said, "Ed, Doug, we all recognize that the current state of the record industry is drastically different from the past. It's much like when Hollywood faced the advent of TV and VCRs. The whole industry was on high alert, frantically trying to prevent the television and VCRs from infringing on Hollywood's interests. The two sides were at a standoff for a long time. It was not until Hollywood realized they could not defeat the opposing forces that they were forced to collaborate. Ultimately, it turned out that television and VCRs did not harm Hollywood's interests; they actually provided Hollywood companies with additional revenue channels.

The situation the record industry faces now mirrors that of Hollywood back then, but it's even more grave because the internet is spreading far more rapidly than TVs and VCRs did back then. Furthermore, the cost of digital pirated music is much lower than film; often, just one person and a server could facilitate the dissemination of thousands of pirated songs online. Thus, time is of the essence. You can't afford to hesitate for long. If you miss the opportunity to establish a legitimate digital music sales platform, setting the public into habits of accessing free music via the internet, then the record industry might face its terminal decline."

Doug Morris couldn't help but interrupt, sensing his nerves twitching. "Eric, you're being alarmist."

"Whether it's alarmism or not can be seen from last year's sales slump in the record industry," Eric shrugged. "Thus, what I mean is that we should quickly reach a cooperative agreement to formalize the digital music industry through the internet. That's the only way to save the entire industry from collapsing."

Edgar Bronfman then spoke again, "Eric, let's discuss your cooperation plan."

"Of course," Eric nodded. "Actually, the current sales model of Yahoo Music Store is what I propose for our cooperation plan. Universal Music can place its music resources into Yahoo Music Store, and the revenue-sharing ratio would be 70/30, with you getting 70%. Additionally, if you prefer, Universal Music can have a three-month exclusivity window for newly released physical albums, after which digital albums can be released, followed by the release of individual tracks three months later."

"Eric, if all you're offering are these conditions," Edgar Bronfman continued, "I don't think there's any need for us to proceed further."

"Actually, I came to introduce Firefly Electronics' newly developed Mini Music Store to both of you," Eric replied with a smile. "We can discuss specific cooperation plans later, and whether Universal Music has any additional requirements. Certainly, our plan for brick-and-mortar music stores won't be delayed by this. Firefly Electronics intends to officially announce that plan in April, coinciding with the launch of the third-generation Fireflyer player. Of course, if we can reach a cooperative intention before then, I believe it will benefit both of us."

*****

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