[Chapter 829: Always Remind Yourself]
After discussing the naming issue of the MP3 player, Bill Olsen continued, "Next up is the Yahoo Music Store, or more aptly, Yahoo Music Box. We've secured online sales licenses for about 200,000 songs, but negotiations with the five major record companies, which hold the richest music copyright resources, haven't progressed much. So, the primary music source for Fireflyer should be CDs. Thanks to the promotion of MP3 audio formats, more than 50% of CDs now utilize MP3 encoding. Even if the format isn't MP3, we can transcode it into MP3 audio."
Yahoo's contract with Microsoft would expire in two years. Although Microsoft had been facing frequent antitrust investigations over those years, it was foreseeable that once the contract expired in July 1999 and Microsoft abandoned the original plan to acquire 30% of the company, Yahoo's browser would lose its status as the default browser on the Windows platform. Eric's original suggestion had been to develop a Yahoo Music Store website, but to prevent Yahoo's browser from being sidelined by Microsoft in the future, Yahoo had recently been pushing for individual software solutions for various online products to reduce dependency on Yahoo's browser.
The same applied here. Both Yahoo and Firefly Electronics collaborated to refine Eric's rough idea, developing a stand-alone Yahoo Music Box software as a sales platform for the online music store. Moreover, Yahoo Music Box could conveniently create software modules specifically designed to identify pirated CDs and prevent them from being used for audio copying. To be honest, due to his past experiences, Eric had never considered this point initially. He was relieved that Yahoo and Firefly Electronics' teams recognized it; otherwise, when Fireflyer was released, Firefly Electronics would certainly face legal bombardment from major record labels.
Standing in front of the projector, Bill Olsen looked at Eric and said, "Eric, while Yahoo is trying to consolidate a large amount of music resources into its online store to activate more paid users under Yahoo's network, I believe this approach doesn't pay off. It's akin to Sony; they have the Walkman, but they do not assume that all record companies will hand over their copyrights to produce music tapes -- that's simply impossible. In my opinion, Fireflyer definitely has the potential to replace the Walkman. If we can take a more open approach, allowing each record company to operate its own online music store, Fireflyer's influence would quickly expand. The current annual sales of the Walkman stand at 15 million units; if Fireflyer could reach that level at a price of $299, our annual revenue could hit $4.5 billion."
"But Bill, Fireflyer currently lacks the influence to prompt major record companies to create dedicated music stores for it. If we persist, the labels are sure to demand exorbitant fees. On the other hand, if Fireflyer gains sufficient clout in the future, we won't need to compromise with the record companies; they'll be the ones seeking collaboration," Eric countered.
"But there should be an opportune moment, Eric," Bill Olsen replied. "Although we've integrated a piracy recognition module into Yahoo Music Box, we still cannot prevent all piracy. The risk of lawsuits remains. If we could completely cut off the channel for copying CDs and achieve complete digital music sales, we could avoid such situations as much as possible."
Eric understood Bill Olsen's reasoning. He had initially hoped that Yahoo Music Box could be separated from Yahoo and operated solely by Firefly Electronics, but Eric had refused. Since Firefly Electronics could not control this platform, Bill Olsen wished for a more open music sales platform, considering the company's interests.
Shrugging his shoulders, Eric smiled. "Bill, we both know that fully achieving digital sales doesn't eliminate piracy issues. However, since Sony won its case regarding video tapes, copyright holders can no longer employ lawsuits to halt technological advancements. Currently, all audio and video playback platforms, from Walkmans to DVD players, cannot fully eradicate piracy issues. Thus, we just need to do what we can and not overly worry about that."
Bill Olsen realized Eric had seen through his thoughts. He didn't feel awkward about it and moved on to discuss the Fireflyer's component procurement system, the construction of the sales network, and product marketing issues.
Over the past two years, Eric had invested around $60 million in the R&D for the MP3 player and e-reader, which included the costs of commissioning Seagate to develop mini hard drives and acquiring Wi-Fi patents; not much of that was primarily directed at developing the MP3 player itself. After all, Firefly Electronics' R&D team for both products had only about 190 members. Though salaries for engineers in Silicon Valley were generally high, the total payroll expenditure over these two years was only $30 million.
By contrast, Bill Olsen's budget proposals from component procurement to product marketing for Fireflyer reached an astounding $200 million, making Eric feel like it was akin to spending $60 million to produce a film but then requiring $200 million for promotion and distribution.
Of course, the development outlook for Fireflyer was noteworthy enough to justify this budget. As Bill Olsen mentioned in the meeting, if Fireflyer could replace the Walkman, it would bring in billions of dollars in revenue for Firefly Electronics each year. Eric knew more than anyone that Fireflyer indeed held the potential to take over from the Walkman and all other portable music players of that era.
...
The meeting extended until 4 PM, finalizing the detailed release and promotional plans for Fireflyer. Afterward, Eric and Chris toured the R&D department with two other heads from Firefly Electronics.
By 6 PM, after dinner, Eric took advantage of the night to fly back to Los Angeles. Chris stayed behind to lead the integration work with British ARM Holdings; the relevant proposal had already been finalized during a phone call with ARM's management the previous day. Prior to that, Firefly Electronics had produced a sample of the e-reader, but given the production cost was nearly $400, to ensure sufficient profit, the sale price should be set at least at $700, which was a price ordinary consumers found hard to accept.
After discussing, Eric decided to temporarily abandon this product and instead utilize the accumulated technology to jointly develop the more advanced tablet, YahooPad, in collaboration with Firefly Electronics, ARM, and Yahoo. This was part of Eric's original second-phase plan, aimed for a mature product launch around 2000. By then, along with the advancement of the electronics industry, production costs for YahooPad would inevitably drop to a more reasonable price.
...
The Gulfstream business jet landed at Santa Monica Airport under the hazy night sky. Just after Eric got off the plane, he received a personal call from Michael Eisner, asking him if he was free for dinner that evening.
Eric understood Michael Eisner's intentions. With external cooperation in Digital Domain halting, it would be challenging for Warner, Paramount, Universal, and Sony to make outstanding CGI movies for a considerable time. Over those days, executives from several major film companies had been secretly calling, probing if Eric would reconsider the decision. Michael Eisner's call seemed relatively late in the game.
Considering there were no prior commitments that night, Eric agreed and headed to Morton's in Beverly Hills, a well-known restaurant frequently frequented by Hollywood figures.
When Eric arrived at the restaurant, it was nearly 9 PM. He quickly found Michael Eisner's table, guided by the waiter. Upon seeing Eric approach, Michael Eisner stood up, shook hands, greeted him, and Eric couldn't help but tease, "I didn't expect you to choose this restaurant."
This wasn't an offhand remark; it referenced a well-known story about Michael Eisner.
In the mid-1980s, while serving as president at Paramount, Michael Eisner was at odds with his parent company's chairman, Martin Davis, and was brewing plans to jump ship to Disney as CEO. After he struck a deal with Disney's decision-makers and resigned from Paramount, the Disney board then had disputes over appointing him, leaving Eisner suddenly in an uncertain state of unemployment. Shortly thereafter, having just left the Hollywood power center, he found himself in an awkward position. One night, planning a dinner with his friend Michael Ovitz, Eisner called Morton's to make a reservation but was unexpectedly told there was no availability. Ovitz called right after and easily secured a table. This incident was nothing short of humiliating for a Hollywood mogul.
Michael Eisner responded to Eric's tease with a bland expression, casually saying, "Some things are worth reminding oneself of regularly."
"Ha," Eric chuckled as they sat down. Though he had already dined in San Francisco, he still ordered something to eat.
Once the waiter left, Michael Eisner took the initiative and said, "Eric, I heard you were in San Francisco recently?"
"Yeah, a company established there just rolled out a small product that's about to launch. I went to check it out," Eric replied.
Michael Eisner smiled, saying, "Anything you value must not be just a small thing, right?"
Eric suddenly realized something but kept his demeanor unchanged, explaining in detail, "It's a new portable music player. Too bad the sample is in my luggage; otherwise, I could have brought you one. It's quite an interesting little gadget."
Since Michael Eisner already knew about it, Eric didn't hide it any longer. He even suspected that Eisner might already be aware of Yahoo's negotiations with Universal Music for online music sales.
Clearly, Michael Eisner intended to leverage Universal's rights as a bargaining chip to gain some tangible benefits, like continuing digital support for Universal Pictures.
However, he was clearly mistaken in his calculations.
"Actually, I had lunch today with Doug Morris from Universal, and I happened to hear about this," Michael Eisner said straightforwardly. "I also learned that the cooperation talks between Yahoo and Universal seem to have reached an impasse."
"That's to be expected," Eric remarked. "Large companies often exhibit arrogance. They frequently fail to grasp the situation, feeling complacent when they hold the initiative, and when they eventually lose that power, they portray themselves as victims."
In the original timeline, several major record companies initially had a significant advantage over Apple in deploying MP3 players. However, either to maintain market positions for their soon-to-be-obsolete portable players or due to rigid corporate structures, many attempts by record labels to enter the MP3 player market ultimately failed, allowing Apple to capture over 70% of the music player market. Eventually, record companies had no choice but to comply with Apple's rules for online music sales, often complaining about how Apple's players facilitated piracy against their rights. Little did they realize that even without Apple, the drastic reduction of costs for pirated music in the internet era would render it impossible for the record industry to maintain its former glory.
Michael Eisner, of course, could not envision that future scenario. He found Eric's statement a bit perplexing but refrained from arguing.
After a casual conversation, dinner was quickly served. Michael Eisner took a sip of red wine, set down his glass, and continued, "Eric, I think you can guess my thoughts. Here's the thing: I can help persuade Mr. Bronfman to support Yahoo's collaboration with Universal. But in exchange, I hope we can keep Digital Domain open for cooperation with Universal Pictures. What do you think?"
Eric shook his head and replied, "Sorry, Michael, I can't agree to your terms."
Michael Eisner was taken aback. He hadn't anticipated Eric would refuse so outrightly. Earlier that day, he had thoroughly investigated the situation with Yahoo's online music store. Although they had secured agreements with several second- and third-tier record companies, the total number of song copyrights in Yahoo Music Store was only a mere 200,000, with popular songs and albums limited to those youth pop artists recently nurtured by Firefly Records. On the other hand, Universal boasted over a quarter of American music copyright resources; if they could reach an agreement with Universal, other record companies would no longer be so resolute.
*****
https://www.patreon.com/Sayonara816.