[Chapter 896: Not Worth It]
Eric had a rough idea of what was happening and continued to ask, "Which record company?"
"Polygram, you know, the one based in the Netherlands. I remember it was around 1992 when Polygram invested in Working Title, becoming the largest shareholder of the film company. One of the founders of Working Title, who I believe was named Tim Bevan, left the company out of dissatisfaction with the deal made by the other partners. Polygram then brought Eric Fellner on board as president, and he's been there ever since," Barbara Broccoli shared as she recounted what she knew. She then curiously asked, "Eric, why are you asking about this?"
Eric was somewhat surprised. While Firefly Electronics had launched the Fireflyer player and had been in talks with major record companies about online music sales, he hadn't been paying much attention to the movements of the major record labels. He originally thought Polygram might have been acquired by other big players; from what he remembered, after 2000, the name Polygram seemed to have faded away. Listening to Barbara, it was clear that this hadn't happened yet.
As he organized the scattered information in his mind, Eric said, "Just before you came over to say hello, I think Eric Fellner was hinting that Polygram might be up for sale."
"I hadn't heard that before," Barbara said, shaking her head. "But this should be a good opportunity. Drew gave me a Fireflyer player a while back, and I think it's pretty great; I just wish there were more songs available at the music store. It's a hassle to have to buy CDs to rip songs. If you had Polygram, the song selection in your online music store would surely increase significantly."
Eric nodded with a smile, but internally, he grasped the situation better.
If Barbara could see the shortcomings of Yahoo Music Store in terms of content, it was certain that Polygram would notice this as well. While he wasn't entirely sure about Polygram's current status, it was clearly connected to what Eric Fellner had just mentioned.
Eric had always hoped that by promoting the MP3 player on a large scale, it would push the major record companies to actively seek out partnerships with online music stores.
However, the lack of content at Yahoo Music Store was indeed a headache. After all, even if he didn't care much for the fate of the entire record industry, if users couldn't purchase legitimate music online and were forced to turn to piracy, the MP3 players would face increasing pressure from public opinion.
Resolute, he decided to gather some information on Polygram. Eric and Barbara casually chatted about other topics.
...
Before the dance track ended, Eric noticed his assistant, Peter Rich, signaling to him with a mobile phone in hand.
Eric nodded towards Peter, saying, "Sorry, Barbara, but Peter might have something urgent for me."
"Of course, no problem."
Barbara smiled and shook her head, releasing Eric, and together they left the dance floor.
As Eric approached Peter, he took the phone and said, "Mr. Williams, there's a call from San Francisco. It's Mr. McNally, and he insists you answer it personally."
Eric nodded and smiled at Barbara one last time as he put the phone to his ear and walked toward the banquet hall's entrance.
Although the call came from Victor McNally, the CEO of Firefly Electronics, it was related to Amazon.
By now, it was close to ten o'clock in London, while it was still early afternoon on the West Coast.
The situation stemmed from the morning's announcement that Amazon had opened pre-orders for the Fireflyer player. At ten o'clock that morning, Amazon officially launched pre-sales to users.
Unexpectedly, within just 52 minutes, sales skyrocketed beyond 50,000 units, a figure that far exceeded Amazon's expectations. Sensing something was amiss, Jeff Bezos quickly paused the pre-sale.
Upon investigation, they discovered that, due to retail stores selling the Fireflyer player for an average of 30 dollars more than Amazon's price, many customers, likely physical retailers, were viewing Amazon as a wholesale platform for the Fireflyer player. Some users even crazily ordered 1,000 units at once, while orders of 50 or 100 units were countless.
Ultimately, of the 50,000 pre-sale units, only about 7,000 came from regular customers; the rest were large orders.
In truth, before opening pre-orders, Amazon had contemplated this issue. During the previous rush phase, Amazon had set a purchase limit of two units per customer.
However, Amazon's management felt that, with a significant increase in Fireflyer production capability, the market demand might not remain so urgent, and they assumed retail prices would gradually align with online prices. Thus, they neglected to impose any purchasing limits.
This decision led to the chaotic situation of rampant "bulk buying" after pre-orders opened. Clearly, physical retailers had tasted enough profits from selling the Fireflyer player in its initial months and were now looking for alternative avenues since they couldn't obtain enough stock from Firefly Electronics.
It was predictable that during the buying frenzy Amazon had conducted earlier, many of these same buyers were involved; otherwise, it wouldn't have been possible for 5,000 units to sell out in less than a minute. After all, securing a Fireflyer player could yield at least a $30 profit, which was a very lucrative "business."
With the error made, Amazon now needed to find a solution.
Canceling those large orders wasn't an option. While the motives of these buyers were questionable, since Amazon hadn't set limits beforehand, they couldn't be considered to be breaking any rules. Placing the company's mistake on the users could lead to lawsuits, and it would be impossible to win; moreover, it would damage the company's credibility.
After pausing pre-sales for an hour, Amazon implemented a two-unit purchase limit for each customer, and the transaction page finally reopened.
However, the immediate effect of selling those 50,000 units would certainly impact Amazon's ongoing supply. Moreover, even with the new restrictions in place, bypassing them would be simple enough if someone had enough patience -- they could just register multiple accounts.
The key to solving this issue ultimately lay with Firefly Electronics. Consequently, Jeff Bezos urgently flew from Seattle to San Francisco to meet with Victor McNally, explaining his predicament and requesting that Firefly Electronics increase their monthly supply to Amazon by at least 50,000 units.
All retailers across the U.S. were in line waiting for supply from Firefly Electronics. Giving Amazon an additional 50,000 units would undoubtedly lead to resentment from retail outlets. Naturally, Victor McNally was reluctant to agree to Jeff Bezos's demands. Bill Olson, who was somewhat impatient, even got into an argument with Bezos. Finally, Bezos proposed calling Eric to make the final decision. Seeing Bezos's determination to stay in San Francisco, Victor McNally had no choice but to call Eric in London.
...
After initially understanding the situation over the phone, Eric returned to his residence on Kensington Garden Street, joining Victor McNally and Jeff Bezos for a video conference late into the night. With Eric mediating, the two sides finally reached a compromise: Amazon's supply would increase by 25,000 units, and that was as far as they could go in resolving the issue.
In truth, Eric felt helpless.
The technology of the Fireflyer player wasn't particularly advanced, but it was still a new electronic product. Unlike CD players or mobile phones, which had been around for years, Fireflyer was not something that could simply ramp up production within months just by contacting the right manufacturers. Because it was a new product, the supply of components was limited, and the assembly plants and production lines needed to be built from the ground up -- not to mention staff training and various other issues. Achieving a rapid increase in production would take several times longer than traditional electronic products.
...
While the video conference had temporarily resolved the issues between Firefly Electronics and Amazon, Eric found that he had lost the desire to remain in London and decided to return to the U.S. There were simply too many pressing matters back home that needed his personal attention.
The selection for the Spice Girls wouldn't be completed in just two or three months; he figured he could swing by again when it was time.
So, the next day, Eric boarded the Boeing 767 rented by Drew from Los Angeles's ALC company.
Pleased with his London trip, Eric's group signed a long-term lease agreement with ALC for the Boeing 767, planning to use it until the delivery of their own Boeing 747. Although the monthly rental fee was a staggering $650,000, not including fuel and other flying costs, Eric didn't object. Sure, $650,000 a month might be hard for an ordinary millionaire to swallow, but for him, it was manageable. After all, once the several planes they planned to purchase were delivered, and two private airports were established on the East and West Coasts, the annual maintenance and upkeep expenses would run into the tens of millions.
The night before, when he left the party, Eric instructed Peter Rich to gather some information on Polygram. Although time was tight, Peter managed to prepare several documents on Polygram before Eric's flight.
The Boeing 767 took off from Heathrow Airport, and after a brief adjustment period, the plane cruised smoothly across the Atlantic. Eric settled into a luxurious suite by the window and began reviewing the materials on Polygram.
Just as he hadn't anticipated that the company behind Working Title would be Polygram, Eric was equally surprised to find out that Philips from the Netherlands was actually Polygram's majority shareholder. His impression of Philips was mostly limited to their shavers and maybe DVD players.
However, after reading through the reports, Eric found that, at the time, Philips was indeed a substantial company in the Netherlands, involved in a wide array of businesses including medical equipment, lighting, consumer appliances, and media entertainment. It was essentially a mini General Electric. In 1996, Philips' annual revenue reached 108.5 billion Dutch guilders, which was nearly $37 billion.
Philips' foray into the record industry was similar to Japan's Sony, aiming to promote its own music player products. In the early '80s, Polygram was co-owned by Philips and Germany's Siemens, and later, Philips fully acquired Siemens's shares in the company by the end of the '80s and listed it on the Amsterdam Stock Exchange. At that point, Philips still held 75% of Polygram's shares, with the other 15% coming from publicly traded stock.
With recent stock prices considered, Polygram's market value reached $9.7 billion.
Just seeing that figure made Eric abandon any thoughts of acquiring Polygram -- not because he couldn't afford it, but because it simply wasn't worth it.
With a market value of $9.7 billion, the final transaction amount would certainly be no lower than $10 billion.
Though Firefly could easily acquire the record company using a combination of cash and stock, if the goal was only for the song copyrights held by Polygram, this would be akin to Sony in the original timeline buying MGM to promote their Blu-ray format. Sony purchased MGM, but within a few years, the streaming era arrived. Neither Sony's Blu-ray nor Toshiba's HD format gained traction, turning out to be pointless in the long run. Now, with the rise of the internet, there was no need to wait years; the digital music era was already upon them.
Moreover, based on Polygram's 1996 annual financial report, the record giant's operating income for that year was $3.6 billion, but the net profit was only $337.8 million. Even if the record industry didn't decline, spending $10 billion to buy this company would take thirty years to recoup the investment.
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