After the Monday afternoon discussions, Amy Pascal began reaching out to executives at the three major public television networks. However, this was merely a smokescreen—Simon's real target had never changed.
In response to Daenerys Entertainment's acquisition intentions, all three networks offered rather positive feedback.
Jack Welch, Chairman and CEO of General Electric (NBC's parent company), called Simon shortly after Amy's initial contact. Welch expressed that GE did not want to completely exit the media business and instead proposed selling half of NBC's shares to Daenerys Entertainment. This, of course, fell short of Simon's requirements.
Larry Tisch, the actual controller of CBS, requested a face-to-face meeting with Simon. However, Simon had even less interest in CBS than NBC. The two only exchanged phone calls twice, with Tisch offering a price during the second conversation—a 50% premium over CBS's current market value, essentially treating Simon like a sucker.
Moreover, rumors quickly spread that Daenerys Entertainment was interested in acquiring CBS, causing CBS's stock to surge. Simon didn't mind the confusion, but his impression of Larry Tisch dropped to rock bottom. Leaking news of a potential deal before it's finalized is highly unprofessional.
Ultimately, Simon's real target remained ABC.
At a post-Oscar party at the end of March, Simon had a brief conversation with Warren Buffett, a major shareholder of ABC's parent company, Capital Cities/ABC. Buffett was not opposed to selling ABC, though he was conflicted between cash and stock deals, even proposing a debt-for-equity swap that Simon found unacceptable.
Over the past month, both Capital Cities/ABC's stock and Daenerys Entertainment's stock had surged due to the overall bullish market. Capital Cities/ABC's market value was now approaching $17 billion, while Daenerys Entertainment had surpassed $140 billion in market capitalization, both setting new records. However, in the eyes of investors, both stocks were somewhat overvalued.
Given Buffett's conservative investment style and the looming capital gains tax reform, it seemed increasingly likely that the veteran investor would opt to cash out entirely from Capital Cities/ABC.
A full cash acquisition wouldn't dilute the Westeros family's stake in Daenerys Entertainment, which was Simon's preferred outcome. Daenerys Entertainment had over $7 billion in cash reserves, with total debt of only $7.3 billion. This meant a debt-to-equity ratio of just 5%, and even if a full cash acquisition required additional bond financing, Daenerys Entertainment's debt ratio would only rise to around 15%.
For most companies, a 15% debt ratio would be considered conservative and well within manageable risk.
The main issue now was negotiating a fair price.
While Simon had deep pockets, he wasn't about to overpay. Given this was a friendly acquisition, Simon could tolerate a premium of around 30%. However, if Buffett, like Larry Tisch, decided to demand an exorbitant price, Simon would prefer to reopen negotiations with GE's Jack Welch, whose cooperative attitude remained strong despite GE's unwillingness to sell NBC outright.
Amid all this, the 1995 summer movie season officially kicked off.
On Friday, May 12th, the summer's first blockbuster, Crimson Tide, premiered. Directed by Tony Scott and produced by Jerry Bruckheimer, this submarine war film starred Denzel Washington and had a budget of $53 million. Disney, the distributor, launched the film on 2,383 screens—an indication of their tempered confidence.
Released alongside Crimson Tide was New World Pictures' adaptation of the biographical novel The Basketball Diaries, starring Leonardo DiCaprio and Mark Wahlberg in a story about drugs, basketball, and the dark side of youth. This low-budget film, made for $7 million, was a coming-of-age drama similar to Gus Van Sant's earlier success, My Own Private Idaho. Despite lukewarm reviews during test screenings, New World Pictures opened it on 516 screens, hoping to build momentum throughout the summer.
DiCaprio, after completing promotions for The Basketball Diaries, had already joined the cast of the modern adaptation of Romeo + Juliet, another New World Pictures project. Australian director Baz Luhrmann, who made his Hollywood debut with Strictly Ballroom three years ago, had spent the last three years preparing for this new film, even dabbling in stage productions before finally starting the shoot.
In the original timeline, DiCaprio's breakthrough came from the success of Romeo + Juliet, which eventually led to him landing the role in Titanic. Simon had no intention of changing this.
While the summer season kicked off, two early-year surprise hits, The Man from Earth and Home Alone 3, were still holding strong in North American theaters.
In the week from May 5th to May 11th, The Man from Earth, in its 11th week, grossed another $2.53 million, pushing its cumulative box office to $229.31 million. The film was expected to leave theaters before the June 2nd release of Jurassic Park 2, with a final North American box office total of around $235 million.
While slightly below the earlier projection of $250 million, the main reason was Home Alone 3, which had performed stronger than expected, cannibalizing around $15 million of The Man from Earth's potential earnings.
Home Alone 3, which opened on April 7th, saw a 23% drop in its fifth week, earning another $14.69 million for a total of $143.45 million. With three weeks remaining before the release of Jurassic Park 2, the film still had a good chance of breaking the $200 million mark domestically, given its steady weekly decline of around 20%.
On May 12th, Simon was in San Francisco.
With the employee stock ownership plan completed, Egret's IPO was fully prepared and ready to file its prospectus with the SEC, meaning Simon no longer needed to devote as much attention to it.
This time, Simon's main focus was Tinkobell.
The electronics company, founded by one of Simon's C-girls, had been riding the wave of the internet boom in recent years, showing remarkable growth.
In 1994, Tinkobell shipped 7.16 million digital cameras, a 159% increase from 1993. Including other products like the portable flash drive iDisk, the company generated $2.19 billion in revenue with a net profit of $270 million.
In just a few years, Tinkobell had grown from a niche tech company into a formidable player in the electronics industry.
On April 8th, Tinkobell unveiled its latest product lineup. After extensive market research, the new iCam-50 featured a 500,000-pixel resolution, up from the previous 300,000-pixel model. However, the originally planned 150MB storage capacity for 3,000 photos was reduced to 120MB, allowing for 1,000 photos instead.
Survey data showed that most users found the 3,000-photo capacity excessive, so the new 1,000-photo capacity struck the right balance. This adjustment, along with the increased resolution, optimized the iCam-50's cost structure.
Moreover, the iCam-50 maintained its $499 retail price, making it highly appealing to current iCam users. Meanwhile, the transitional iCam-40s, which still used the 300,000-pixel sensor, saw its price reduced to $449.
Another flagship product, the iPlayer-10, featured a 500MB hard drive, the most expensive component of the digital music player. Utilizing Egret's MP3 audio format, the iPlayer-10 could store 100-150 songs, equivalent to 500 minutes or 8 hours of music. While this came at the cost of reduced sound quality, most consumers were not particularly concerned with audio fidelity.
The biggest obstacle to the iPlayer's success was content.
Fortunately, Broadcast, the online platform Simon had established years earlier, solved this problem.
When the iPlayer-10 launched, Broadcast offered 300,000 licensed songs, including hits from popular bands like Backstreet Boys and Guns N' Roses, as well as all of Simon's singles. Although 300,000 songs were still a small portion of the overall music catalog, Broadcast's other offerings, such as audiobooks, talk shows, and educational content, helped compensate for the limited music library.
Additionally, the iPlayer-10 was relatively easy to crack, allowing users to download various pirated music files from the internet.
While Western consumers generally preferred to pay for legitimate content, if they couldn't find it legally, they had no problem resorting to piracy.
After the iPlayer's release, some record labels threatened to sue over piracy concerns. Simon's stance was one of pragmatism.
With the precedent set by Sony's victory in the Betamax case, such lawsuits would be difficult to win. Simon's goal wasn't to encourage piracy but rather to use the iPlayer's popularity to pressure record labels into making their music available on Broadcast for sale.
The internet was an untamed frontier, and the best way to cultivate it was by planting valuable crops rather than letting weeds grow unchecked.
That's the philosophy Simon adhered to.
The iPlayer-10 was launched on April 15th, and within four weeks, from April 15th to May 11th, Tinkobell's two flagship products, the iCam-50 digital camera and the iPlayer-10 digital music player, were met with overwhelming demand.
Due to limited production capacity, especially for the iPlayer-10, Tinkobell employed a "hunger marketing" strategy, selling the products exclusively through its flagship store on Amazon. This scarcity, combined with extensive media coverage, further fueled the hype, making the products even more desirable
.
The popularity and frequent stock shortages even led to a spate of robberies targeting these electronics across North America.
With a $499 price tag, the products were primarily aimed at the middle class, who could afford the accompanying computers and internet access needed for the iCam. Before the iPlayer, the iCam didn't attract much criminal attention. However, the iPlayer-10, with its compact size and ability to store over 100 songs, became a must-have for music lovers, even for those without internet access, as they could easily download music at internet cafes.
This created a perfect storm.
In fact, during the 1977 New York blackout, many of the stores looted were audio equipment retailers, which indirectly contributed to the rise of hip-hop music.
Unsurprisingly, the recent robberies mostly involved African Americans.
In Chicago, one case even led to a murder. A young couple, using an iPlayer-10 to listen to music and an iCam-50 to take photos by Lake Michigan, were robbed by two young African American men. The boyfriend resisted and was fatally stabbed.
The two men were quickly apprehended and charged with murder, but as they were both penniless, the case ended with them being imprisoned. The victim's family, devastated by their loss, filed a lawsuit against Tinkobell, claiming the company's products indirectly caused the tragedy and seeking $100 million in damages.
Such lawsuits are common in the U.S.
While Tinkobell fought the lawsuit, they also issued a public reminder through the media, urging customers to be cautious and discreet when using their "i" series products in public, sparking widespread discussion.
These incidents did nothing to dampen the hot sales of the two products.
In the first week of sales, only in North America, the iCam-50 sold 320,000 units, including pre-orders. In other markets like Japan, the U.K., and Australia, the camera sold another 130,000 units, bringing the global first-week total to over 450,000 units.
This was without even launching in key markets like France and Germany.
The iPlayer-10, on the other hand, was initially only available in North America.
In the first week alone, the initial batch of 100,000 iPlayer-10 units sold out completely. Starting in the second week, Tinkobell released 200,000 units per week, yet demand still outstripped supply.
By May 11th, in just four weeks, the iCam-50 had sold a total of 1.53 million units worldwide, while the iPlayer-10 had shipped a clean 700,000 units.
Though the iPlayer-10's sales were less than half those of the iCam-50, it was clear to many that the digital music player had more potential in terms of popularity and market size.
The iPlayer-10 had even sparked a wave of thefts across North America. In the second-hand market, many iPlayer-10 units were being resold for more than the official price, with some fetching as much as $1,200 on the eBay auction platform—more than double the $499 retail price.
Scalpers had entered the fray.
Given the widespread demand for music in the West, the market for digital music players was far larger than that for digital cameras. Despite Apple's closed ecosystem, the iPod's peak annual sales exceeded 50 million units, and this was after the rise of smartphones, which had already eaten into the music player market.
Now, with the internet rising and smart devices yet to become mainstream, this was the perfect time to push digital music players into the market.
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