M -------U--------S-------T****************R--------E--------A--------D
I believe that there are a number of issues regarding TSIG that need to be clarified. This has turned out to be much, I mean really MUCH longer than originally expected, (6 printed pages,) so I would heartily recommend you print this and peruse at your leisure. Quickly, but at your leisure. It's a must read, IMHO, especially the income vs share price projections.
It's also important to note that there will always be a lower price in the Internet CD business. That's why it's so important to get the customer outside the Internet arena. That's why The Card is such a killer concept. CCSI will own their customers before they log on, and basically preclude most net shopping. Just look at Shopping.com and you'll see the absolutely, positively, without a doubt lowest CD prices available. At least for the top 100 CD's only. Not all CD's. Next month someone else will be lower. Meanwhile, our customers will be coming to their computers with The Card in their hands to do immediate business. No we won't get 'em all, but for those that will have a card and shop somewhere else we'll already have made the profit without having to ship a CD. (By the way, shopping.com is a full 20% lower with books than Amazon. Betchya Amazon continues to grow rapidly, and shopping.com has difficulty making a buck!)
Many of us that participate here on the thread are very excited about the opening of The Site. While there is a certain cache' to being in the Internet CD sales business, what with the KTel excitement only a few weeks old, I sincerely believe that we've lost sight of some fundamentals.
Two, specifically;
ú TSIG, as we might all agree, is not in the Internet CD sales business. (More on that in subsequent chapters, if necessary.)
ú Furthermore, and probably to the surprise of many, CCSI is also not in the Internet CD sales business.
Whoa, you say. OK, we'll all agree that TSIG's core business is the teleservices business. Which, by the way says a lot more than I believe many of us can comprehend. But for now let's leave that one alone and focus on what appears to be a conflict. More later on core business opp's.
Whaddaya mean CCSI is not in the Internet sales business? The hell it isn't; you say! Well folks I've got news for us all. The hell we are!!! We, CCSI that is, couldn't be further away from the Internet CD sales business if we tried.
Now then, the next question should be, "if not, then what business is CCSI in?"
CCSI is in The Card business. Yes, and to be more precise, The MusiCard business.
OK, now let's try to figure out just what this means. (I don't believe any of us have the full picture of what surprises are in store for TSIG, and us little 'ol shareholder's, on the upside that is.) All along we've been figuring that CCSI would buy CD's at one price and sell them for another, a higher price mostly. Yes, yes, CCSI will be doing that but they'll be doing just a bit more. Quite a bit more, to be precise.
Now, let's take a look at the dynamics of The Card. More importantly, the economic dynamics of The Card.
The Card. will sell at 3 different price points. Probably, $2, $4/6, and last but not least, full retail at $10. And maybe a fourth, $0. Yes ZERO. Just to get the distribution. Humongous distribution. Nothing beats individual incentives when it comes to getting your product distributed. That's why CCSI's distributors are so vitally important to the program. (Now please keep in mind that a profit will be earned selling CD's at $10.99 all day long without The Card when you realize that you don't have to load up your costs with the traditional high marketing expenses. The Card is not only the marketing plan, but actually generates immense revenues to boot. Now you say immense appears to be hyping. OK, read on, and you be the judge.
10 Marketing scenarios for The Card. IMAGINE...
Please send any other of your ideas to me by PM and I will present them to RG's marketing people for consideration.
General Motors, Ford, Chrysler, BMW, Mercedes, etc wants to sell more 10 disk CD players for their '99 new car fleet. The profit margin on each CD unit sold is easily more than $180. Someone from TSIG/CCSI, or one of our distributors, goes to each of the car companies and for, say $2 or maybe $4 per, TSIG will provide The Card, but get this, embossed & personalized with the Chrysler's/Mercedes logo and given to each purchaser of the ten disk CD player as a gift, or what would be called a premium. Now think about this for a minute. How many new customers would this really little effort provide to CCSI? Even if CCSI gave the bloody card away to a big name like Chrysler/Mercedes? Or any/all of the majors? Getting a clearer picture. How many CD players are currently being sold by auto mfr.'s?
Panasonic wants to induce more people to buy their CD players at the retail level. So, guess what would make a nice inducement to a potential customer to buy a Panasonic rather than the other brand. All your CD's from now on will only cost $10.99. Someone from CCSI, a dealer perhaps, calls on Panasonic and, imagine., and with the Panasonic Logo on The Card.
You're going to a Yankee game. Blue Jays, Braves, etc. You're going through the gate and guess what? Yankee Stadium, all stadiums, as is their habit from time to time, has a special day. Instead of ball, or bat, or cap day, it's MusiCard day.. Reaching? No way, it's more than possible, probable. Someone's gotta sell it, a CCSI distributor probably, but it can be done. 60,000 new customers, one shot per stadium. Do the numbers.
Sam Adams beer is promoting it's brew in a new market, or in an established market for a soft season. A six/twelve/full case, whatever pack, gets you a MusiCard. Costs Sam Adams a buck or two, and voila, in just one month of promotion, 100,000 new customers. Budweiser, Coors, how many can you think of?
American Airlines wants to run an advertising/marketing program promoting their Nashville Tennessee destination. The Grand 'Ol Opery is a great draw. Guess what they do at the Opery. Music. So. American advertises a MusiCard will be given on board every trip to every passenger so that American's passengers can buy all the Country Western, or Bluegrass that they want at $10.99 each. Costs American a couple a bucks per for every airline ticket that they sell for more than a hundred or two, depending on point of origination. Cheap hit to get new passengers. Just think people, be creative and you can begin to see what's going to happen. Imagine.. Do the numbers.
Every campus bookstore has a checkout counter. A small POP, (Point of Purchase,) counter display is designed, and sold into the campus bookstore, with a program where The Card, costs the bookstore $5, and the margin at $10 is a clear 100% profit to the bookstore. A no-brainer for any bookstore. Boy would I love to handle that market. And each MusiCard sold on campus, has the school colors and school logo. Easy sale, no? Yes!!! Count the campus's, count the student's. Do the numbers. These negotiations are ongoing as I write this.
Gateway Computers is always looking for another premium, computer related, so that they can "appear" to give away something to their new customers upon receipt of their new system. Wouldn't it be a natural for Gateway, Dell, Compaq, Hewlett Packard, etc to provide to all new customers a.. MusiCard? Anyone doing the math yet? How many computers does Dell ship a week, a month?
Yahoo recently began to take a percentage back from many of the banner ads it runs on its sites. By, giving a percentage of sales, a very small fractional percentage of every sale, no matter how small cuts deeply into the margins of CDNow, KTel et al. Let's say CCSI says to Yahoo, run our banner ad for our MusiCard and we'll give you 50% of the proceeds of all the sales of The Card. (It's at this point Yahoo says screams 50%?) Two things happen; CCSI margins on their sales of CD's stay intact and a profit is still earned by CCSI on the sale of The Card. However, a larger and substantially more important event occurs. Yahoo now has a humongous incentive to do the banner ad program with CCSI. It will earn a 50% margin on the sale of The Card, plus if it is properly structured by CCSI, Yahoo can continue to earn on the purchase of replacement Card's by the original customer. This MusiCard replacement margin percentage can be negotiated at a declining rate to Yahoo and an increasing rate of return for CCSI on each purchase for up to a certain number of MusiCard's.
Virgin Air wants to cross promote Virgin Records and run a special with The Card. And so on and so on and .
OK. last one. For me that is. (I'll bet you can come up with another dozen in a heartbeat. Just IMAGINE what interested distributors will come up with.) World Com/MCI wants to attract new subscribers. So they begin a coordinated mail and advertising campaign, (oh, by the way, do you all now know what the meaning of a guerilla marketing campaign is?, It's when someone else pays you to advertise your product,) at any rate, in order to attract new subscribers, WorldCom will provide, free of charge with every new sign-up, a MusiCard that will get you 10 or 20 or whatever number they buy into, new CD's when you come aboard. They can target it to households with teenagers and who need a second line. The telco can actually target the teen by mailing directly to the teen. After all, AT&T has been sending out $25 checks, $100 credits etc. for incentives. How about a classy, with an WorldCom/MCI, AT&T, Sprint logo, $5 cost, $10 value, buy all the CD's for $10.99 each MusiCard.
Now I really could go on, and on, and on VISA, Master Card, American Express, Shell Oil, Mobile, Kellogg's, Spaulding, Nike, Coke, Pepsi, Hard Rock Cafes, Rock Concerts, Rolling Stone/High End Audio/Audiophile subscriptions, etc. etc. etc.
Now some/all of this may be eye opening to many of you, but guess what? None of this is the best news. The best news is when you fully understand one thing. There's nothing better to sell than something that no one else has. Except one other thing; this is a CONSUMABLE and re-orders will be directly from TSIG at the now higher price of $10 each or back through the original distributors for certain markets.
This marketing device, The Card, is the reason that Darryl Piercy had a 10 fold increase in business between '96 and '97. CCSI, under TSIG's new marketing efforts will blow those numbers away. Once again, I hope this doesn't appear to be hype. I believe It's the way it'll be and no one else does it our way.
Now lets continue, but do it from a numbers perspective. Right now there are 48,300,000 shares outstanding. (Oh by the way, did you hear about the PP being signed Friday. Rumor has it that it's really done and there's 3 mill right away and 5 more after certain milestones are reached.)
Back to those shares, let's say we get to sell, well you tell me, how many of The Cards, do you think our guerillas will be able to sell? I'll betchya more than 10 million, in a breeze. Really, and I don't think that's being too optimistic. Conservative if anything. And then there's that consumable thing. That's repeat sales, you know repeat and repeat and repeat ..
OK, multiply the number of The Cards, by, say, what do you figure the average net price CCSI will receive for The Card?
Now, the number you get after all is said and done will be the minimum gross profit CCSI will do for the year. I say this because selling the CD's at $10.99 will show a profit in-and-of-itself.
Now, let's do some extrapolating. I say an average price of $3 for each of The Cards sold. (It will be higher, but for now let's just say $3 bucks.) That translates to $30,000,000 gross profit. Really more like net because the actual use of The Card, will generate the operating profits from the actual sale of CD's. Remember that we can sell CD's all day long for $10.99 at a profit. Starting to see why a competitor could be very determined in keeping the share price suppressed. Furthermore, can you see why there would be such a refined and concerted effort to discredit Rob Gordon? (Just who is jab?)
OK, OK with 48 million shares outstanding and $30,000,000 in profits, and I do believe they can be net, that's somewhere in the amount of .62 cents per share profit. Now, what kind of a multiple do you want for this net sector investment? 20, 30, 40? I say at least 40, probably more but let's just be happy with 40. Ummmm, 40 times .62 or so, gives us a share price of about $25. Now I know that sounds too good to be true. But let's face it, CCSI will only be a portion of TSIG's business plan, and quite frankly I think we'll do a lot better.
Let's have a little fun. It's at this point that I would like some group participation. Below are some hypothetical's. Do some of your own extrapolating. What do you come up with?
Outstanding Shares at 48,300,000
Card's sold_________________ @ Average Price________ Share Price @ 40 PE
10,000,000_______________________$3____________________$25
10,000,000_______________________$4____________________$33+
11,000,000_______________________$3____________________$27+
15,000,000_______________________$3____________________$37+
15,000,000_______________________$4____________________$50
???????????_______________________$?____________________$????
Another way to look at it is in reverse. Pick a share price, any share price. You say $2 bucks. Small timer, but OK, we'll play with $2 bucks. Now, how many of The Card's will CCSI have to sell, if all the rev's from The Card go straight to the bottom line?
Same PE of 40, and same 48,300,000 outstanding shares.
Share Price_________________ @ Average Price ________________ Card's sold
$2__________________________$3_____________________805,000
I believe that this is ridiculous and can't even be considered. Anyone wanting to sell their shares back into the float as a daytrader is really pennyante. Yes a sure thing, but pennyante just the same when one considers what the near term potential of CCSI really is just with The Card.
Sales of The Card will happen quickly. Some have already taken place and many more are in the process of negotiation. The illustrated examples are exactly that. Only examples. Who knows, I may have hit some by accident, after all, it doesn't take a rocket scientist to go where the money and marketing synergies lie. Although I do know of a soon to be announced relationship, (and it is large,) I have not used the above examples with that knowledge in mind. Use your own imagination and let it rip. And for God's sake, think big. The Card is a global phenomenon. Don't limit your imagination to national borders.
Of course, if the market rewards TSIG with a higher PE multiple due to advanced/anticipated earnings, and I sincerely believe the market will reward TSIG for this, Rob Gordon's acknowledged facetious remark about a $200 share price may be more than just a joke. It just may be that RG knows more than he can say. Directly that is.
Now remember, the more CD's we sell, the more market share we take, the more marketing expense KTel, CDNow etc. will have to expend and subsequently lower margins. TSIG/CCSI will continue to gain market share and I believe will emerge as one of the major finalists in the Internet CD retailing business, er, I mean the MusiCard business.
By the way, does anyone now not know the meaning of Guerilla Marketing?
Anyone interested further in this subject should go to amazon.com and get a copy. Great book! Was at a seminar one of these guys did out in Scottsdale in '87 and it was dynamite. May actually been the inspiration behind DP's sales concept. If not, at least his general attitude towards competition and back door marketing. Glad to have him on the team.
|
