Strauss Zelnick

Brandweek, July 3, 2000 by Michael Schrage

Very important. The combination of online and offline is crucial. I think one of the mistakes that people have made building online businesses is believing that there's some distinction in having an Internet front end to a business that makes it a business unto itself.

Your bet is that the click-and-mortar will beat the pure plays?

I think it's unquestionably true. The closest analogy you can find to the Internet before the Internet became a business tool was mail order. What we found out is that ultimately mail order is really viewed as a tool that is a piece of a retailer. The Internet isn't a business, it isn't a business model, it isn't even a business proposition. It's a tool. We have to use new media as a tool to build our businesses. Most businesses will have significant Internet pieces in the next 10 years, if not sooner. Figuring out how to do that is a real issue. The reason there's so much buzz around entertainment is since the Internet is an audio, visual and interactive medium, entertainment companies are best positioned to exploit it.

If you're Ford Motors you can afford to wait a little bit. Eventually, when a Ford goes there, it needs to learn about entertainment. Ten years ago, what was the extent of Ford's involvement in audio-visual content? It hired an ad agency to make TV commercials and to do print ads. Now if you're Ford and you have a Web site and you want to sell cars on the site, you're in the audio-visual entertainment business if you want to attract customers to that site.

When you talk to people, traditionalists, do they understand that?

More and more do.

Does that create interesting opportunities and alliances for BMG?

Yes. One of the things we're finding is people need access to the kind of content we have to build up their unrelated businesses, and we can syndicate our content and get paid and get some equity, and can promote our artists more.

Could you be a resource for the content, the infrastructure and the interactional?

Unquestionably. We made a deal with egreetings.com where you can create electronic greeting cards using our music and our stars. Are we in the greeting cards business? Of course not. Previously, what did greeting cards use? They used animations or cartoons or photographs. Now they need audio visual content. Do they know how to make that? No. Do we? Yes. Is this a win-win situation? Sure. We syndicate our content and we promote our artists.

Is that going to be an ancillary business or is it going to be a pillar?

I suspect it's going to become a core business. One of the reasons I'm so optimistic about the music business going forward is that the actual promotional cost center becomes a profit center in and of itself.

Is Napster a threat? Are the people using Napster thieves?

Absolutely. Let me give you an analogy. I've got a very nice library at home. Say I install a Xerox machine in the library and I put a note on the front door of my home saying the door's open, come on in, anything you like in my library you can copy it, then just put it back. That's Napster. Is that fair use? That is absolutely not fair use. It's fair use if a friend comes over, but if every time someone stops by I make complete copies of hundreds of books, that is simply not fair use. The only purpose of Napster is to promote that activity. That makes Napster a copyright violation and it makes people who use Napster pirates.