novelraw Chapter 11: Genuine Products Overwhelm Pirated Products
Chapter 11: Genuine Products Overwhelm Pirated Products
At the Gongbei Port border crossing, Zheng Hui followed the flow of people through the border, stuffed his return permit into his pocket, and hailed a taxi.
"Go to the Bank of China."
Upon arriving at the Macau branch, Zheng Hui did not queue at the regular counter but went directly to the wealth management area on the second floor.
He currently has over six million in cash in his account, which would definitely make him a high-quality customer in Macau in this day and age.
He was greeted by the same young female teller from last time. Upon seeing Zheng Hui, she immediately stood up with a warm smile on her face.
"Mr. Zheng, how can I help you?"
Zheng Hui sat down and took out his ID card and a bankbook from his bag.
"Open a new account and deposit HK$1.2 million into this new account."
The female clerk took the documents and quickly began operating the computer.
"Okay, please wait a moment. Should this money be deposited into a fixed deposit or a current account?"
"For current accounts, and after opening the account, I need a proof of funds for this new account."
The female teller looked up at Zheng Hui: "Proof of funds? It's for..."
Zheng Hui replied, "To do business, I need to go to the mainland to do some business."
The female clerk didn't ask any further questions, and the printer started buzzing.
In those days, the mainland had extremely strict foreign exchange controls.
Publishers and tape manufacturers wouldn't dare accept an order of his size without proof of funds.
Moreover, only with this certificate and the subsequently signed formal contract can he apply to the State Administration of Foreign Exchange to remit the money to the mainland and turn it into payment for the goods to the manufacturer.
Otherwise, it would be extremely difficult to transfer over a million Hong Kong dollars into a mainland account through legitimate channels.
If you go through underground banks or carry it yourself, you're likely to run into trouble.
"Mr. Zheng, this is your new bankbook and proof of funds. Please check them."
The female clerk handed over several sheets of paper stamped with a bright red seal.
Zheng Hui took it and carefully checked the name, amount, date, and the crucial bank seal.
After confirming that everything was correct, he put the document into the file bag and fastened the rope.
Thanks.
Back at his business in Fai Chi Kei, Zheng Hui sat at his desk and began to devise a plan for the future.
The song has been recorded, the license application is in process, and the cover design has been finalized.
Next comes production and sales.
He wrote two words in his notebook: carrier and cost.
There are only three types of audio-visual media on the market today: magnetic tape, CD, and VCD.
VCDs are indeed very popular now, and there are VCD players everywhere. Aido and BBK are fighting tooth and nail for market share.
But that applies to movies and TV shows, like Jackie Chan's films and Stephen Chow's comedies; people are willing to buy VCDs to watch at home.
Music albums? Unless it's an idol singer who sells sex appeal or looks through visuals, VCDs aren't the first choice for just listening to music.
What about CDs? They have better sound quality and sound more upscale.
But who is his target audience? Students.
What does this group have? A Walkman.
In those days, cassette players were the standard equipment for students in the city.
As for CD players? A Sony portable CD player easily costs one or two thousand yuan. How many students can afford that?
Even if their families could afford it, parents wouldn't let them bring it to school. It's a luxury, and they'd be heartbroken if it got lost or broken.
Moreover, CDs themselves are expensive, with a genuine CD costing fifty or sixty yuan, or even over a hundred yuan.
How much is a student's monthly living allowance?
In the mainland market, cassette tapes still held an absolute dominant position. Whoever controlled cassette tapes controlled 90% of the student market.
Moreover, there are costs involved. Producing a CD or VCD involves costs such as the pressing of the disc, the packaging of the plastic box, and the printing of the lyric booklet. No matter how much you compress the cost, there will always be a cost of two or three yuan.
Because these two industries have not yet achieved complete localization, decoding chip patent technology, machine maintenance, and other aspects still need to be purchased from abroad, so costs cannot be reduced.
What about magnetic tapes? From equipment to raw materials to production, everything was domestically produced.
For mass production orders in the millions, the outer shell is made of general-purpose transparent plastic, the magnetic strip is made of high-quality domestic tape, and a cover with folds is added.
If the quantity is large, the cost can be reduced to between 0.8 and 1.2 yuan. This is still the standard for genuine products that guarantees quality and does not cut corners.
If it's those counterfeiters, they can use inferior recycling bags and brittle plastic for the outer shell, and the cost can be reduced to less than 50 cents. Of course, this is under the condition of mass production. Small batches will still cost about one dollar.
But Zheng Hui doesn't intend to make inferior products; he wants to make genuine products—genuine products that can be listened to dozens of times without getting tangled and with clear sound quality.
One dollar—that's his estimated cost. Of course, this excludes his own creative costs and the record company's share.
When considering the complete version, the price should be taken into account. How much do genuine cassette tapes typically cost on the market now?
New albums by big-name singers like Jacky Cheung and Faye Wong generally cost around ten yuan. Second-tier singers, or those with older albums that didn't sell well, also cost around ten yuan. (Imported versions sell for eight yuan, but the sound quality is poor.)
What about pirated copies? Three, five, or ten yuan for three boxes. This price gap pushed the vast majority of students into the pirated market.
It's not that they don't want to support genuine products, it's that they really can't afford them.
What if the price of the genuine product were reduced to the same level as the pirated one? Zheng Hui has over six million Hong Kong dollars in capital and plans to produce one million cassette tapes. At a cost of one yuan per tape, that would amount to approximately one million Hong Kong dollars.
In those days, manufacturers required advance payments for orders, typically ranging from 30% to 50%.
In other words, he only needed to put up HK$500,000 to get the production line running and produce one million cassette tapes.
This amount of money is not much for his current net worth. Even if all one million boxes rot in the warehouse and cannot be sold, he can afford to lose money.
With this confidence, he can play a game that others can't afford to play—a price war.
The cost is one yuan, and it's sold to wholesalers for three yuan, making a profit of two yuan per box. One million boxes would yield a gross profit of two million yuan.
This may not sound like much; compared to those highly profitable industries, this profit is meager.
But Zheng Hui wasn't interested in the profit per box; he was after market share and the speed of distribution. Guangzhou Audio-Visual City was currently the largest distribution center for audio-visual products in the country.
Every day, provincial and municipal agents and middlemen from all over the country gather there to purchase goods.
What do they look at when buying goods? They look at whether the goods will sell well and the profit margin.
If Zheng Hui sets the selling price at three yuan, the stall owners can resell the goods to distributors for three and a half yuan or four yuan.
Distributors sell them to small shops near the school gates for five yuan. In the end, the students get six or eight yuan.
This price is only slightly more expensive than a pirated copy.
However, this is the genuine product. It has good sound quality, beautiful packaging, and even includes a lyric booklet, making it a collectible item.
For owners of audio-visual stores, selling pirated copies is risky; they have to guard against investigations by the industry and commerce bureau and the cultural bureau.
How much profit can you make selling a pirated box? The cost price is two yuan, and the selling price is three yuan and fifty cents, making a profit of one yuan and fifty cents.
What about selling Zheng Hui's original works? The cost price is four yuan, the selling price is six yuan, and the profit is two yuan.
Higher profits, no need to worry, and can be displayed openly in the most conspicuous position on the counter. Even a fool would know which one to choose.
Of course, there will definitely be those poorly made pirated copies, selling for two yuan a box, or even one yuan and fifty cents a box. But those kinds of goods have such poor sound quality that it sounds like they were recorded underwater, the tape will break after listening to it twice, and even the lyrics are printed incorrectly.
Students won't buy junk goods if the price difference isn't significant; this group also cares about vanity and keeping up with the Joneses.
Other singers can't do this because they can't guarantee a hit and don't dare to invest heavily. But Zheng Hui only takes songs that will become hits in later years. Even if they don't, he still has other ways to make money, so he dares to gamble.
This is a price war unique to reborn artists; other singers and record companies would not and dare not do this.