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Listening Post

Listening Post From its operations in Woodland Hills, Cisco Music thrives worldwide amid the chaos in the recording industry by providing a place for artists lost in the shuffle of corporate downsizing By JEFF WEISS Contributing Reporter As external pressures from Internet downloading wreak havoc upon the music industry, record labels have downsized operations in the hopes of increasing profitability. Attempting to reduce costs, major labels have jettisoned many notable artists that no longer fit into the record company’s plans. With the industry in flux, Woodland Hills-based music distributor, manufacturer and licenser Cisco Music sees opportunity, in the form of a ready pool of talented artists without representation. Having previously focused on international distribution, Cisco has recently begun making its first forays into the domestic music scene. David Fonn, president and controlling owner of Cisco, first came to the company when it was struggling and known as Pacific Eastern Sound. A Taiwanese immigrant, Fonn had spent almost all of his working career up to then in the movie business and had little knowledge about the music industry. “I graduated from college with a degree in civil engineering in Taiwan. I got in the movie business in Taiwan. I had the great opportunity to join Warner Bros.,” Fonn said. “In that time, American pictures were very popular in the far east market. I worked there for 15 years.” After leaving Warner Bros, Fonn became the vice-president of 20th Century Fox’s Taiwan office. After eight years at Fox, Fonn and his family decided to move to the United States in the hopes of finally putting his civil engineering degree to use. “When I came here I did real estate construction until 1979. The American economy was very bad under President Carter. Interest rates were high and construction wasn’t faring well because most house buyers couldn’t qualify for a loan, Fonn said. “I quit the real estate business and stayed home for a little while. Then Pacific Eastern asked me to manage the office. I figured I’d work there for one year, hoping that the real estate business would pick up. I’ve been here for 24 years.” Rescuing the company In the middle of the 1980s, business at Cisco reached a nadir when the Japanese side of the business soured. Cisco operates eight record stores in Japan that saw large declines in profit, leading to Cisco’s accumulation of $2 million in debt and being on the verge of bankruptcy. “At one time Cisco was very unstable because the Japanese side of the business had soured and it affected it here. I invested in the company and helped it stay stable and I became a personal guarantor for the company. I didn’t purchase the majority control of the company until 1998.” Currently, Fonn owns 55 percent of Cisco music’s Woodland Hills operation and its offices in London, Jamaica, New York and Taiwan. Fonn’s daughter, Abey Fonn, Cisco’s vice president owns 5 percent. The remaining 40 percent is owned by Cisco Music in Japan. David Fonn also owns 16 percent of Cisco Japan. “Basically, we support all of the product that Cisco Japan needs from the United States. Cisco Tokyo has retail shops and we very recently have established a new company called Soundscape,” Fonn said. “We take music from the United States and provide it for Japan. There are eight Cisco Music stores in Japan. The product here supports not only our own stores, but we have a distribution division where we distribute products to other chain stores such as Tower Records and HMV.” Despite the constant threat of downloading, Cisco’s Japanese locations have been able to survive because of their emphasis on specialization. While Tower Records sells everything under one roof, Cisco’s Japanese stores have different themes, each catering to a certain musical taste. “We have a store in Japan called Cisco Reggae shop that exclusively sells Reggae. We purchase the music from local Jamaican distributors at our Cisco Jamaica office and ship it to the Japanese location,” Abey Fonn said. “Most of the stores have DJ booths where people can go and listen to live music and hear what’s up with the trends. Another store sells only techno. Another sells House and yet another sells hip hop. They all have their own specialties.” However, Cisco Music doesn’t merely serve as a middleman to provide its Japanese locations with new music. Cisco manufactures CDs and licenses artists, as well as being a music distributor. While only 7 percent of Cisco’s sales are domestic, Fonn plans to expand Cisco’s role in the United States in the coming years. “We plan to increase our domestic business. We used to just do design for export only. But in the last few years most of the major companies have laid off a lot of artists and the companies have shrank smaller and smaller,” Fonn said. “Those artists and labels need someone to present their product in the U.S. I thought that this was a good opportunity for Cisco to do domestic. It used to be that the major companies controlled all of the labels. Now they have less of a share of the market. We have the know-how and I thought now was the right time.” Getting around piracy In order to combat the avalanche of illegal downloading that has devastated the record industry, Cisco has focused primarily on music formats that are not conducive to piracy. “The Internet has hurt our business, but we’ve overcome it by diversifying. We also have a division called The Audiophile Division. It is classical or jazz and done on 180 gram virgin vinyl, not recycled vinyl. These are very special and well-cared-for finished products,” Abey Fonn said. “When people invest in this type of music they don’t want to hear it downloaded. Half of the people who buy this branch of music don’t even own a computer.” Don MacInnis, president of record manufacturing company Record Technology Incorporated praised Cisco’s abilities to succeed in a difficult marketplace. “Certainly, they’ve managed to be successful in a very tough market. Pre-recorded music sales are stagnant at best and for a lot of people they’re down,” MacInnis said. “Through the talent that Cisco possesses, they have been able to continue to thrive in a tough market. Our relationship with them is very good because of their business acumen and their great integrity. They are probably the most reliable account that we have. They are reliable in continuing to give us orders and to be able to pay for their products always on terms without fail.” Cisco’s prospects seem brighter than most predictions for music companies. Business for 2004 has exceeded expectations and profits have grown each year since 1993. Domestic revenues were $7 million last year, with $40 million taken in worldwide. “One of the reasons why we’ve survived in the business for as long as we have is because we always try to maintain our integrity. We still do a big business in vinyl and SAC format. We’re trying to keep our company’s and our artists intact,” Abey Fonn said. “We’ve gotten a lot of mainstream artists like Joan Baez and Jennifer Warnes, who are still good artists but are no longer with the major labels. We want to expand domestically and continue being a profitable business.” SPOTLIGHT: Cisco Music Year Founded: 1980 Employees in 1980: 4 Employees in 2004: 140 (global) Revenues in 1980: $800,000 (domestic) $3 million (global) Revenues in 2003: $7 million (domestic) $40 million (global) Goal: To continue improving Japanese Web sales, licensing more products from the United States and to continue to expand domestically and find new formats and opportunities within the music business. Driving Force: Changes in the music industry that cause artists to be without representation and sign with Cisco.

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