Chapter 41#

In the industry, the origin of learning machines has never been a secret. Although they operate under the banner of combining education with entertainment and popularizing computer keyboard operations, in essence, the core of this type of machine is a copy and imitation of the Nintendo Famicom (NES). Apart from connecting a simple keyboard, the learning machine’s operating system, operation mode, and even the games loaded on the cartridges all come from Nintendo. It is plagiarism that disregards copyright laws.

However, for consumers, they don’t care where the product comes from or who owns the patent rights. What they care about is only whether the item is trendy and easy to use, and whether it is good quality and cheap. Due to the cunning of the imitation and the precise grasp of consumer thinking, learning machines became dominant in just two years, squeezing countless low-end imitations of the Famicom out of the market and achieving great success.

But what does the revelation behind this success mean for him? Looking at his wife’s casual expression, Meng Lisheng only felt sweat sliding down his spine. Compared to the Famicom, the structure of the VCD player is actually not much more complex, especially the disc burning and the player’s playback mode. If the product goes on the market and is studied by people with ulterior motives, he believes that within a few months, the manufacturing process will be cracked, and the same product will be replicated.

At that time, if the VCD player really meets the needs of the Chinese market and really has such a large sales range, why would others give up this undefended piece of fat meat and let him dominate the VCD market alone? By then, he will face opponents with strong financial support and sufficient scientific research strength one after another, and it will be a disorderly and chaotic bandit-style market.

His body swayed, and Meng Lisheng could no longer stand firm, collapsing onto the sofa. Just such a side issue, he looked at it one less time, took one less step, and what would he face?! And that teenager didn’t look at anything, didn’t care about anything, only asked for two points, only brought two machines. What does this mean?

It was as if the weakness deep in his heart had been seen through clearly, and strong medicine had been prescribed for the symptoms. While dizzy, Meng Lisheng felt a fear from the bottom of his heart. Xiao Junyi’s words instantly surfaced in his mind: “His vision and ability are impeccable”, “The Xiao family stands behind him”… Wiping the cold sweat from his forehead, Meng Lisheng showed a trace of a wry smile. Now he finally knew the authenticity and weight of these words. The feeling of being completely defeated was really not good, but at the same time, he was extremely fortunate that this teenager intended to be a friendly force on the same front, not an enemy.

Maybe he really should give up all prejudices and bravely take a step. This business world is much more complicated than he imagined, not something that researchers like him and Professor Yan can control… Sitting on the sofa and thinking for a long time, Meng Lisheng suddenly stood up and dialed an international long-distance call. If they want to cooperate, they should also show full sincerity, shouldn’t they?

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“Learning machine and Famicom?”

Xiao Junyi repeated these two names in a low voice. For him, neither of these two models was unfamiliar, especially the Famicom, which was very popular among the younger generation in that circle. He had even played games like Super Mario and Adventure Island a few times. Conversely, in the eyes of those Famicom enthusiasts, learning machines were a bit unsightly, often referred to with disdain as “knockoffs”.

Of course, these children don’t understand the real difference between genuine and knockoff brands, but spoken in this context now, how could Xiao Junyi not know the meaning represented by these words? This must be the “patent rights” issue Yuanming mentioned just now, right? Currently, domestic patent laws are actually not sound, and Nintendo has no intention of exploring the Chinese market, which allowed learning machines to run rampant. But without patent rights, without legal means of maintenance, what kind of situation will those new things face?

A military factory can manufacture refrigerators and color TVs just by pulling back a production line. A small company with only hundreds of thousands in assets can become the hegemon of the domestic game industry after imitating and stealing others’ ideas. There are countless varieties of imitations on the market. This country currently has no strict legal protection measures, and various disorderly competitions are destroying the vitality that the market should contain. Today Chen Yuanming is talking about the current status of the game console industry, so what about the future VCD? Or mobile phones even further away?

This time without joking around, Xiao Junyi frowned slightly. “I should also tell my uncle and the others, right?”

Chen Yuanming nodded. “It is only right.”

Looking at the serious-faced young man in front of him, Chen Yuanming sighed slightly. Xiao Junyi had completely understood these words, so would Meng Lisheng, the father of VCD, also be somewhat touched? In fact, Chen Yuanming had thought about this move today for a long time, how to win by surprise, how to successfully persuade the rigid minds of this era. This was the first step he took, and also the foundation of the entire big plan, the butterfly flapping its wings to reverse this era.

Is the loss of VCD patent rights really just a simple case of business failure? Actually, in Chen Yuanming’s eyes, not entirely. Or rather, the success of learning machines and the rise of warlords in the VCD empire are exactly two tragic manifestations of China’s industrialization. Here, two extremely bad examples were set up, declaring that innovation is not that important, and ideas and concepts are far less swift than plagiarism. Immediate interests blinded most people’s eyes, and the fact that China had not entered the WTO gave those short-sighted people sufficient protection.

Starting from the 90s, China’s manufacturing industry rapidly entered the fast lane of imitation and OEM. “Shanzhai” (copycatting) became a spirit, and a large amount of manpower and material resources were used on opportunism. People no longer valued invention, nor the comprehensive national strength represented by scientific research. Due to the high cost of innovation, a large number of true technical personnel were shelved, and people with ideas, thinking, and integrity finally faced the predicament of not having enough to eat. Fast, cheap, and zero cost were the only goals valued by those “winners”.

And this blatant market attitude was also slowly eroding consumers’ concepts. The trust in the “three big items” (bicycle, watch, sewing machine) and the national pride in Phoenix bicycles and Shanghai watches gradually turned into sarcasm and ridicule of “genuine products are high-priced, whoever buys them is stupid”. Since there are pirated discs for 5 yuan, why sell genuine ones for 15 yuan? Since movies can be downloaded from the internet, who still wants to go to the cinema to consume? Why buy expensive drugs sold by well-known manufacturers when you can buy similar low-priced products? Since copycat goods are good quality and cheap, why spend a lot of money to buy a genuine one…

Seemingly innocent but extremely cruel questions left all conscientious enterprises speechless. This ridiculous confidence was smashed to pieces by cruel reality after entering the WTO. Due to DVD copyright restrictions, for every DVD player China sold abroad, it could only earn 1 US dollar in profit but had to pay 18 US dollars in patent fees. The DVD manufacturing industry, which once occupied more than 80% of the world, became someone else’s wedding dress in a snap of the fingers. Most electronic product chips relied on imports; if the upstream was slightly stuck, the downstream prices would skyrocket. Almost all major brands in the world have OEM factories in China. Those expensive, luxurious, and trendy products effortlessly plundered a large amount of hard-earned money just by holding patents and technology hostage.

World factory, kingdom of copycats—it sounds glorious and honorable, but isn’t it also an Ah Q-style self-mockery? In the memory of his previous life, this country wasted a whole ten years, paid extremely expensive tuition and prices, struggled painfully in labor pains, and was reborn from the ashes. Now, this blueprint is still blank. Can he become that butterfly to incite and change this world…

Thoughts slowly drifting away, Chen Yuanming stopped talking and looked out the window at that tall and straight tree. It was only early March, and the treetops were still bare, without a single new bud. But it will. With the comfort of time and the nourishment of rain, it will once again be leafy and reach for the sky. All it needs is a spring rain…

That night, Meng Lisheng called. Compared to his previous blind rudeness, this time there was a bit more seriousness in his voice. On the phone, he told Chen Yuanming that he had contacted Professor Yan in the United States. After serious discussion, they decided to visit again three days later to discuss cooperation matters.

Putting down the phone, Chen Yuanming exhaled gently, revealing a trace of a smile.

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Unlike the previous meeting, this time they did not choose Meng Lisheng’s home but set the negotiation location in a hotel. In the luxury suite, on one side was a dining room with a table full of delicacies, and on the other side was a bright and clean reception room. Several people sat upright on the sofa, the fragrant tea in the cups steaming with heat. A large stack of materials was placed in front of them, and a man spoke cautiously.

“This is all the information we currently have.” Unlike Meng Lisheng, Professor Yan, as a Chinese American, wore a well-fitted suit. Whether in mental outlook or mentality and style, he was more in line with the style of future business elites.

Chen Yuanming raised his head and smiled gently at the other party. “Very clear, easy to understand at a glance.”

In his hands were all the planning details regarding VCD production, including the price of production lines that must be invested in, sales assessment for the market, expenses needed for early publicity, and even human resource allocation, etc. Chen Yuanming dared not say he was proficient in these, but from the general plan, he could see the seriousness of the two.

“Regarding the patent rights issue mentioned before, Professor Yan and I have also considered it carefully.” On the other side, Meng Lisheng spoke with some trepidation. “Patents are indeed a major problem we need to overcome at present. Yesterday, Professor Yan contacted a patent agency in the United States. They have considerable experience in applying for patents. As long as the product is made, we can immediately systematically apply for industrial property rights in most countries and regions except China. We have decided to name the product brand ‘Feiyan’ (Flying Swallow) and have entrusted the design of the trademark.”

Saying this, he paused and glanced at Xiao Junyi with some difficulty. “As for domestic property rights issues, the currently practical patent law in China is somewhat different from international standards, so it is estimated that we can only apply for patents ourselves. This involves many departments and may take some time.”

For China at present, patent law is indeed a new thing, and it is reasonable to have scruples. However, now that Feiyan has got rid of the various constraints caused by relying on bank loans, and does not value local support as much as in the previous life, in order to retain this very potential emerging industry, the province will also support the development of the enterprise with a more open and reasonable attitude. Chen Yuanming is not too worried about this point. The local government that could take out more than 10 million US dollars to engage in the VCD industry in the previous life should not obstruct for this little problem now, not to mention the presence of the great god of the Xiao family.

Smiling, Chen Yuanming put down the materials in his hand and sat up straight. “I am already very clear about your sincerity. The only problem now is the VCD discs I mentioned before. In my plan, the production and manufacturing of VCD discs are not in the expected target. This involves too many relevant departments and should not be intervened by the player manufacturers.”

As soon as these words came out, both of them were stunned. “But if we don’t produce VCDs now, how will we sell our video players…”

Chen Yuanming shook his head. “Your thinking has fallen into a misunderstanding, or the product positioning is not clear enough. What the VCD player should replace is not karaoke equipment, but video recorders. It is a supplementary product for TV sets, a tool for playing film and television works.”

After speaking, he gently flicked the materials in his hand. “Actually, not only VCD players, but VCD discs must also be patented. The main purpose of this patent is no longer to obtain benefits, but to exchange for copyright. Nowadays, the production of audio-visual companies on the market mainly relies on cassettes and CD discs. Listening to songs actually does not require eyes. But film and television works are the opposite. Laser discs are too expensive, and videotapes are not only expensive but also have a rewritable mode, which is not ideal for sales. But if a cheap substitute appears, won’t those film and television companies be moved?”

“It’s also a math problem. After a movie is released, its profit margin will shrink rapidly. The revenue from TV reruns and videotape sales is not considerable. But with video discs, these movies will enter millions of homes along with VCD players. If selling one VCD player can sell one hundred sets of film and television discs, then what is the commercial prospect contained therein?”

Meng Lisheng opened his mouth wide. “But… the duration…”

Chen Yuanming smiled. “Yes, the duration does not match. If VCD must be used as the carrier, then a movie needs two discs to finish playing, which will greatly increase the difficulty of playback and does not conform to the principle of simplicity. This is the root of my second concern about the VCD industry—it is not the best carrier. Can’t optical discs accommodate more capacity and longer duration? VCD should never be the end point, but the first step in this huge market. So in my vision, not only should energy be focused on the development of VCD, but also greater energy should be invested in the next generation of products. This is not a matter of winning or losing in one battle, but a continuous campaign. Every opportunity is crucial.”

That’s right, this is the second major hidden danger of the VCD industry. While China’s manufacturing industry was complacent about the huge profits of VCD, Japan had already entered DVD development and launched the first generation of DVD discs in 1994. Subsequently, in 1995, the DVD standard was defined by the 6C Group, which choked the patent rights of the DVD industry worldwide in one fell swoop and obtained immeasurable wealth. In this era, if one does not think about innovation, then no matter how brilliant the victory, it will become a passing cloud in the blink of an eye. What they have to do now is to race against time and compete with all potential enemies. This will be a war without smoke. He cannot let China lose at the starting line.

These words plunged everyone present into silence. After a long, long time, Professor Yan chuckled lightly. “The country awaits new talents to emerge… We are really old.”

Meng Lisheng also nodded helplessly. “Who would have thought of this? I originally thought that I had outstanding vision to think of developing VCD, but I didn’t expect it to be immature at the starting point…” Saying this, he looked at his partner beside him. “Old Yan, how about it? Do you have the confidence to engage in the next step of development?”

Professor Yan laughed heartily. “Having made the MPEG format first, of course, we can also be the first to make MPEG-2. On this point, we won’t lose to anyone at present!”

The confidence in his tone almost overflowed, revealing a heroic spirit of an old man chatting about youthful madness. Amidst the excited conversation between the two, Chen Yuanming leaned gently against the back of the sofa. Tired, but a power was rising in his heart. This was his first step…

The next afternoon, after visiting the VCD R&D studio, inspecting the factory site on the spot, and discussing some detailed issues, several people agreed on a preliminary cooperation intention. As the largest investor in the VCD industry, Chen Yuanming will invest 5 million RMB in the early stage of the project to accelerate the R&D progress, expecting to produce a prototype in mid-June. At the same time, 20 million RMB will be provided as construction costs for building factories and customizing assembly lines.

After the prototype is successful, Meng Lisheng and Professor Yan will be responsible for the application and registration of domestic and foreign patent rights, while Chen Yuanming will be responsible for finding people to contact film and television companies to negotiate VCD disc production matters. After everything is settled, it is expected to officially go into production in October. After that, he will continue to invest 15 million RMB as publicity expenses and 10 million RMB as additional expenses for developing updated products.

In addition to the 50 million invested by Chen Yuanming, Professor Yan will inject 10 million RMB for R&D and production, and Meng Lisheng will mainly contribute technology shares. The equity distribution of the three is 3:2:4, with Meng Lisheng as the company’s controlling shareholder. The remaining 10% of shares will be allocated separately as preferred shares for the enterprise to absorb technical personnel.

For the current domestic environment, this letter of intent undoubtedly has epoch-making significance. After determining the general matters, Chen Yuanming embarked on the flight back to Shanghai again…