WEBVTT - Rob Price 0:00:08.640 --> 0:00:12.640 Welcome, Welcome, Welcome back to the Bob Left Sets podcast. 0:00:13.000 --> 0:00:17.880 My guest today is Rob Bright's CEO of the School 0:00:17.960 --> 0:00:22.079 of Rock. Rob. How many schools of Rock are there? 0:00:23.040 --> 0:00:26.520 Not enough, Bob? But today we've got three hundred, just 0:00:26.640 --> 0:00:30.560 under three hundred and forty around the globe in fifteen 0:00:30.600 --> 0:00:31.600 countries altogether. 0:00:33.280 --> 0:00:36.000 Okay, And how many are owned by School of Rock 0:00:36.159 --> 0:00:38.280 or they all franchised? How does it work? 0:00:38.960 --> 0:00:43.040 We operate forty six of the schools. Those are exclusively 0:00:43.120 --> 0:00:49.519 in the US, scattered about in key markets, but the 0:00:49.560 --> 0:00:52.839 rest are franchised all through the US and internationally. 0:00:53.800 --> 0:00:56.600 So let's say I want to have a franchise, walk 0:00:56.680 --> 0:00:57.200 me through it. 0:00:58.400 --> 0:01:01.920 Well, you know what's interesting is we tend to appeal 0:01:02.120 --> 0:01:06.000 to people who've never done a franchise before, because ours 0:01:06.120 --> 0:01:12.000 is really a purpose driven passion area where folks arrive 0:01:12.920 --> 0:01:15.680 at their interest in School of Rock either having been 0:01:16.040 --> 0:01:19.480 a parent of a student student themselves as an adult student. 0:01:19.800 --> 0:01:22.679 They may have seen one of our bands perform, they 0:01:22.720 --> 0:01:25.200 may be a fan of the movie and and come 0:01:25.240 --> 0:01:31.640 across come across our franchise, so they'll reach out to us, 0:01:32.520 --> 0:01:36.600 and there's there's a there's kind of a long dating process. 0:01:36.720 --> 0:01:41.160 We want to find out the intent. We want to 0:01:41.240 --> 0:01:46.080 understand if they're doing this for the right combinations of 0:01:46.280 --> 0:01:50.680 changing the world and and doing something that's economically viable, 0:01:51.160 --> 0:01:53.600 and then we step through a series of discussions that 0:01:53.640 --> 0:01:56.760 can take weeks or even months to make sure that 0:01:56.840 --> 0:01:59.960 the match is there. In some ways, it's really similar 0:02:00.200 --> 0:02:04.200 to other franchise businesses. In other ways it's really different 0:02:04.480 --> 0:02:08.240 because we are searching for people who have an equal 0:02:08.320 --> 0:02:12.760 amount of an interest in return on effort as return 0:02:12.840 --> 0:02:17.440 on investment. People are really looking to bend the universe 0:02:18.160 --> 0:02:20.240 by transforming lives through music. 0:02:21.440 --> 0:02:26.519 Okay, so let's assume I'm excited. What is the deal 0:02:26.639 --> 0:02:28.520 I'm going to get with you? And is every deal 0:02:28.639 --> 0:02:31.080 the same or is every deal unique? 0:02:31.280 --> 0:02:35.320 Yeah, the deals are all the same. We've got standard 0:02:35.360 --> 0:02:40.560 economics that have a initial franchise fee that's just under 0:02:40.600 --> 0:02:45.359 fifty thousand dollars, and then the economics going forward, there's 0:02:45.400 --> 0:02:49.440 the startup costs. There'll be the construction, they'll be build 0:02:49.480 --> 0:02:53.800 out soft costs, architecture, et cetera, et cetera, to build 0:02:53.880 --> 0:02:58.720 a unit that is physical unit, physical school about twenty 0:02:58.720 --> 0:03:05.280 five hundred square feet, and then going forward, once that 0:03:05.400 --> 0:03:10.360 school opens. The transactions are as follows, is that we 0:03:10.440 --> 0:03:13.360 earn a eight percent royalty and we earn a three 0:03:13.400 --> 0:03:18.160 percent brand fund that we spend on behalf the franchise ease, 0:03:18.320 --> 0:03:24.200 on paid marketing, and on infrastructure, and then the rest 0:03:24.240 --> 0:03:26.600 of the residual economics flow through to the franchise e. 0:03:27.400 --> 0:03:30.000 And you know, many of our franchises choose to do 0:03:30.080 --> 0:03:33.760 more than one, but about three quarters of our franchisese 0:03:34.320 --> 0:03:37.839 are single unit franchisees and most are owner operators. 0:03:39.200 --> 0:03:41.280 Let me ask you, I've always been interested same thing 0:03:41.320 --> 0:03:45.760 with royalties in the music business. Okay, ultimately you're getting 0:03:45.840 --> 0:03:48.320 the better part of ten percent. How do you make 0:03:48.360 --> 0:03:50.040 sure you get your money? 0:03:50.520 --> 0:03:53.720 Yeah, it's a it's a great question, and that's that's 0:03:53.760 --> 0:03:57.120 a challenge for some franchises. For us, we have an 0:03:57.160 --> 0:04:01.600 integrated point of sale system. We have a monthly subscription 0:04:01.760 --> 0:04:05.560 for our services at the individual school level, so a 0:04:05.640 --> 0:04:11.280 parent or an adult student will will kind of sign 0:04:11.360 --> 0:04:16.800 up for renewing participation, hopefully in our performance program, which 0:04:16.800 --> 0:04:22.440 I'm sure we'll talk about, and as those transactions happen, 0:04:22.560 --> 0:04:26.719 the royalties are automatically dispersed to School of Rock, so 0:04:27.360 --> 0:04:32.360 we don't really have any collections issues, and frankly, our 0:04:32.400 --> 0:04:36.040 franchisees of such high integrity, I don't even imagine if 0:04:36.120 --> 0:04:39.320 we were in a scenario where the technology wasn't our friend, 0:04:39.680 --> 0:04:43.400 where we would've got a high degree of professionalism within 0:04:43.440 --> 0:04:47.880 the community. But thankfully we don't have to face that 0:04:48.040 --> 0:04:51.160 uncertainty because it all happens in an automated way. 0:04:52.000 --> 0:04:56.279 Now, have any franchises gone billy up or has the 0:04:56.600 --> 0:04:59.160 parent organization need to reclaim them? 0:05:00.000 --> 0:05:04.520 We have had an extraordinary situation. You know, you will 0:05:04.560 --> 0:05:09.279 typically see in most franchise systems that you will see 0:05:09.320 --> 0:05:15.479 a meaningful number on a percentage basis, maybe three four 0:05:15.680 --> 0:05:19.800 five percent of the system might fail in a given year. 0:05:20.400 --> 0:05:24.720 We are well below one percent in our history, and 0:05:24.760 --> 0:05:28.680 that's a source of extraordinary pride, especially given COVID. I mean, 0:05:28.720 --> 0:05:33.040 COVID should have put us out of business entirely. So 0:05:34.160 --> 0:05:39.039 we've only had a few circumstances where we've had where 0:05:39.080 --> 0:05:45.279 we've had schools close their doors, and in many circumstances 0:05:45.279 --> 0:05:48.240 where there is some concerns that a school has, they're 0:05:48.279 --> 0:05:52.280 able to transfer it to another enthusiastic perspective franchise e, 0:05:53.320 --> 0:05:56.920 and in some cases we've acquired schools, but we don't 0:05:56.960 --> 0:06:01.920 typically acquire schools to operate that are not strong performers. 0:06:01.960 --> 0:06:05.919 We like to buy schools that are great performers, that 0:06:06.040 --> 0:06:11.880 we think have substantial upside potential. So I, you know, 0:06:12.000 --> 0:06:13.680 knock on wood. I'm not sure if I'm in a 0:06:13.760 --> 0:06:16.880 room with any real wood. But the thankfully, we have 0:06:17.040 --> 0:06:21.920 not had the kinds of situations that many multi unit 0:06:21.960 --> 0:06:27.680 operations have where we see periods or even averages of 0:06:27.760 --> 0:06:29.599 meaningful reduction over time. 0:06:30.520 --> 0:06:35.440 Okay, so you get someone who's interested, they have the money. 0:06:36.120 --> 0:06:38.800 You know, when it comes to cost structure and a 0:06:38.839 --> 0:06:43.120 successful business, location is very important. So to what did 0:06:43.160 --> 0:06:46.040 we as a parent organization involved in location? 0:06:46.960 --> 0:06:50.359 It's incredibly important and it's really good instinct that you 0:06:50.480 --> 0:06:52.960 ask that because it's not obvious. You know, we think 0:06:53.000 --> 0:06:57.039 when we were kids, you didn't think about visibility or 0:06:57.080 --> 0:07:00.800 location for music lessons or youth and Richmond activities. It 0:07:00.920 --> 0:07:02.680 was word of mouth and you'd hear it from your 0:07:02.680 --> 0:07:07.400 neighbor or a church or synagogue or whatever. Get you 0:07:07.600 --> 0:07:09.800 just get a hunch where to go for the things. 0:07:09.800 --> 0:07:15.960 For kids today, locations really important. We provide a we 0:07:16.000 --> 0:07:20.600 have a kind of preferred partnership with a national real 0:07:20.720 --> 0:07:27.520 estate site selection firm that helps the franchisees facilitate the 0:07:27.560 --> 0:07:33.160 selection the negotiation of their leases. They're not obligated to 0:07:33.240 --> 0:07:36.080 use it. We don't participate in the economics, so we 0:07:36.120 --> 0:07:39.760 can be an honest broker in regards to making that connection. 0:07:40.560 --> 0:07:44.400 We approve each site, so we also use our own tools. 0:07:44.440 --> 0:07:49.040 We've got a really really extensive statistical model that we 0:07:49.240 --> 0:07:52.160 use that takes all the sites that we have today, 0:07:52.640 --> 0:07:55.800 evaluates what makes them successful, and that gives us a 0:07:55.840 --> 0:07:58.440 sense for where we should put a school in a 0:07:58.480 --> 0:08:03.000 given part of a territory and even more specifically which 0:08:03.080 --> 0:08:06.280 street or which shopping center based on the data that 0:08:06.320 --> 0:08:08.800 we have. So we've got a lot of support for that. 0:08:09.200 --> 0:08:11.880 And then of course there's always art to the sciences, 0:08:11.920 --> 0:08:14.960 as you know, you know, the location is something that 0:08:15.080 --> 0:08:19.640 a local entrepreneur, a local community member may know a 0:08:19.680 --> 0:08:23.160 little bit more about than even a broker. They may 0:08:23.200 --> 0:08:27.120 know what's happening from a residential development standpoint, they may 0:08:27.160 --> 0:08:30.360 know where the schools are. And then those weird dynamics 0:08:30.360 --> 0:08:33.720 where somebody may not drive past this highway because that's 0:08:33.800 --> 0:08:38.680 just not where we drive or morning side of the street, 0:08:38.720 --> 0:08:41.760 afternoon side of the street, et cetera. So we're very 0:08:41.880 --> 0:08:45.000 very active in the selection or in the help of 0:08:45.040 --> 0:08:47.880 the selection of the locations because we want these to 0:08:47.920 --> 0:08:51.599 be of enduring value. We want them to be successful 0:08:51.640 --> 0:08:54.199 for decades, not just for the next five years. 0:08:55.160 --> 0:08:57.560 Okay, what are some of the criteria that make a 0:08:57.600 --> 0:08:58.800 location successful. 0:09:00.080 --> 0:09:04.080 Well, you know, we tend to focus in areas that 0:09:04.200 --> 0:09:12.760 have combination the following attributes, high disposable income, high percentage 0:09:12.760 --> 0:09:21.920 of kids, and where there's enough aggregate population to provide 0:09:22.040 --> 0:09:24.720 you know, enough of a rich target set for just 0:09:24.880 --> 0:09:31.120 enough people to populate the school. And then beyond that, 0:09:31.160 --> 0:09:34.120 we always in the territory. Since we're performance based and 0:09:34.160 --> 0:09:38.760 our real product is producing young performers. How that comes 0:09:38.800 --> 0:09:42.720 to life is in venues. So we'll always look at 0:09:43.080 --> 0:09:47.320 what the venue configuration is in a given territory and 0:09:47.440 --> 0:09:51.360 make sure there's enough proximity and magnitude of venues. We're 0:09:51.480 --> 0:09:57.280 huge fans of independent venue operators in part because we're 0:09:57.720 --> 0:10:03.160 really dependent on strength of that community to make sure 0:10:03.160 --> 0:10:07.080 that we've got these sweet spot sizes of the two hundred, 0:10:07.200 --> 0:10:12.719 three hundred, four hundred seat venues. And so we take 0:10:12.760 --> 0:10:17.079 that into consideration as well, and then it gets down 0:10:17.120 --> 0:10:21.040 to really specific things bob visibility, co tenancy. We do 0:10:21.160 --> 0:10:24.840 well as you can imagine near places like a Whole 0:10:24.880 --> 0:10:32.120 Foods and where there's other things for mom to do. 0:10:32.520 --> 0:10:35.520 Once she drops her young artist off at the school, 0:10:36.000 --> 0:10:37.640 we want her to be in a position to go 0:10:37.679 --> 0:10:40.880 do her thing, be convenient, come back when that kid's 0:10:41.040 --> 0:10:43.600 a little more proficient and a little happier. 0:10:45.080 --> 0:10:51.040 Okay, how many of the franchisees is this their primary 0:10:51.640 --> 0:10:52.560 mode of income? 0:10:53.679 --> 0:10:56.319 We don't have good data on that, so I can 0:10:56.360 --> 0:11:00.760 only give you an anecdotal answer to it. Would suspect 0:11:00.800 --> 0:11:05.920 that the majority it is, but I'm not certain that 0:11:05.960 --> 0:11:08.880 it would be the vast majority. We have a mix 0:11:08.920 --> 0:11:13.160 of both. And what's what's interesting is that I'm often asked, 0:11:13.760 --> 0:11:17.720 is the success model in our franchise system single unit 0:11:17.800 --> 0:11:23.480 or multi unit owner operator versus passive operation? And if 0:11:23.480 --> 0:11:27.560 you map our units, we've got we've got schools in 0:11:27.600 --> 0:11:31.360 every one of those categories, and we've examples where the 0:11:31.480 --> 0:11:36.760 unit economics and the customer satisfaction are super high. So 0:11:37.640 --> 0:11:41.680 the answer is that while it's most most is the case, 0:11:43.160 --> 0:11:46.240 we are not exclusively focused on that because if you 0:11:46.280 --> 0:11:51.720 can build a team as a investor or a more 0:11:51.760 --> 0:11:56.040 passive operator, and build a team that has passion like 0:11:56.080 --> 0:11:59.760 they're the they're the owners themselves, this can be a 0:11:59.840 --> 0:12:06.000 very very very successful, more passive ownership model. We always 0:12:06.080 --> 0:12:09.000 want the owner to be engaged. They should be there 0:12:09.000 --> 0:12:12.240 at the shows. They should be making sure that the 0:12:12.240 --> 0:12:17.160 facility and the culture and the core operations are excellent. 0:12:19.280 --> 0:12:22.680 But I think that ultimately we're actually open to all 0:12:22.760 --> 0:12:24.920 of the different models, which may be a little different 0:12:25.000 --> 0:12:26.560 than some other franchise systems. 0:12:27.640 --> 0:12:30.000 How much money can I make owning a school of rock? 0:12:31.240 --> 0:12:33.319 Well, the good news is we have some data in 0:12:33.480 --> 0:12:38.000 our in our franchise disclosure document. I always to be 0:12:38.040 --> 0:12:41.600 careful because the FTC could you know, you can see 0:12:41.640 --> 0:12:45.280 on zoom I'm short and a little stout, so stripes 0:12:45.280 --> 0:12:49.040 wouldn't look so good at me on me. So but 0:12:49.440 --> 0:12:52.840 what one of the benefits we have in our franchise 0:12:52.880 --> 0:12:57.560 disclosure document is I can report out the profitability of 0:12:57.600 --> 0:13:01.680 our corporate owned schools with great precision. And I think 0:13:01.720 --> 0:13:03.880 this year we're going to be We're going to be 0:13:03.880 --> 0:13:08.480 delivering kind of a twenty percent ebit DAH margin on 0:13:09.920 --> 0:13:13.760 average unit volume that is well north at seven hundred 0:13:13.760 --> 0:13:18.480 thousand dollars per unit, so that takes into consideration even 0:13:18.520 --> 0:13:21.959 if we were if we were paying ourselves royalties, we 0:13:22.000 --> 0:13:26.800 adjust that percentage as if we were franchisees. So I 0:13:26.880 --> 0:13:30.880 always recommend, and this transcends music, Bob, you know, I 0:13:30.960 --> 0:13:35.400 always recommend when folks are looking at franchise opportunities. If 0:13:35.400 --> 0:13:40.160 the institution doesn't have any company owned schools or company 0:13:40.160 --> 0:13:45.200 owned units, and you can't get precise economics, it's hard 0:13:45.240 --> 0:13:49.720 to gauge the likely return on investment. And then further, 0:13:49.800 --> 0:13:52.280 if you don't get good P and L information from 0:13:52.280 --> 0:13:57.320 existing franchisees who are comfortable and enthusiastic to share, those 0:13:57.360 --> 0:14:00.280 two things are probably a good sign that it's something 0:14:00.280 --> 0:14:03.280 to stay away from. In our case, we have really 0:14:03.320 --> 0:14:07.120 extensive economics in our own schools, the corporate run ones, 0:14:07.520 --> 0:14:11.600 and our franchisees are very comfortable sharing the good and 0:14:11.640 --> 0:14:15.920 the bad of being a School of Rock franchise. Thankfully, 0:14:15.960 --> 0:14:21.680 we've had remarkable growth over the last six years, comping 0:14:21.720 --> 0:14:25.800 double digits every year, and even when you take COVID 0:14:25.840 --> 0:14:30.040 into account, we have an annual compound annual growth rate 0:14:30.240 --> 0:14:34.600 of our ebit in the double digits, which is really 0:14:34.680 --> 0:14:35.800 terrific for our schools. 0:14:36.560 --> 0:14:40.000 Okay, let's say I've jumped through the hoops, I've signed 0:14:40.040 --> 0:14:44.200 the agreement, I've found a location. Let's talk about physical 0:14:44.240 --> 0:14:48.640 space that generally speaking, it's twenty five hundred or is 0:14:48.680 --> 0:14:51.400 that the minimum? Does it vary? And once I get 0:14:51.440 --> 0:14:55.440 the space, is there a specific blueprint such that every 0:14:55.480 --> 0:14:57.720 school of rock I go in will be similar or 0:14:57.720 --> 0:15:00.320 are they all completely different? Question? 0:15:00.520 --> 0:15:03.760 You know, there are some non negotiables we want in 0:15:03.800 --> 0:15:09.920 that space. The right number of rooms for lessons individual lessons, 0:15:10.560 --> 0:15:15.200 but just as importantly, the right configuration of our rehearsal rooms. 0:15:15.560 --> 0:15:17.720 So the magic of what we do are preparing these 0:15:17.840 --> 0:15:21.480 kids to do real rock and roll gigs, and we 0:15:21.560 --> 0:15:24.960 need a great back line, we need great acoustics, We 0:15:25.000 --> 0:15:28.320 need a space that gives the feel and the configuration 0:15:28.440 --> 0:15:33.000 of a stage environment. And so every school will have 0:15:33.040 --> 0:15:36.200 a minimum number of lesson rooms, minimum number of drum 0:15:36.280 --> 0:15:40.920 rooms specifically because those have unique dynamics, and then a 0:15:40.920 --> 0:15:45.000 minimum number of rehearsal rooms. And then, believe it or not, 0:15:45.080 --> 0:15:47.680 one of the most important parts of the design is 0:15:47.680 --> 0:15:50.680 a student lounge. We're really trying to become that third 0:15:50.800 --> 0:15:55.000 space for kids, you know, kind of where Starbucks serves 0:15:55.040 --> 0:15:59.000 the adult population. We want them as they're transferring between 0:15:59.160 --> 0:16:03.160 songs or on a break from a given song in 0:16:03.160 --> 0:16:07.120 their rehearsal, sitting in the lounge, comparing notes, learning how 0:16:07.120 --> 0:16:09.600 to interact with each other. Is a lot of what 0:16:09.680 --> 0:16:13.720 we deliver is not just the musical proficiency. It's civics. 0:16:13.960 --> 0:16:17.880 It's the lessons on how to socialize. So to put 0:16:17.920 --> 0:16:21.320 that to get back to your specific question, we do 0:16:21.400 --> 0:16:26.080 have a specific configuration, but we're really flexible. That can 0:16:26.120 --> 0:16:29.600 be a square space, that can be long and narrow 0:16:29.840 --> 0:16:34.320 or shallow and wide. It can be two floors, it 0:16:34.360 --> 0:16:38.520 can be on the second floor of a shopping center. 0:16:39.120 --> 0:16:43.440 But we do have minimum criteria and twenty five hundred 0:16:43.560 --> 0:16:48.240 is our target. We've done less in highly urban locations. 0:16:49.720 --> 0:16:53.440 You know, Palo Alto is a location under two thousand 0:16:53.440 --> 0:16:58.560 square feet, one of our highest volume schools, but we 0:16:58.720 --> 0:17:00.520 really like to be at that twenty five five hundred 0:17:00.520 --> 0:17:02.800 square feets. Some of our schools choose to do their 0:17:02.840 --> 0:17:06.520 own mini venue inside the school, and that might add 0:17:06.560 --> 0:17:10.000 another five hundred to seven hundred and fifty square feet. 0:17:10.040 --> 0:17:10.960 We don't require it. 0:17:10.920 --> 0:17:13.600 Though, how many lesson room, how many drum rooms? 0:17:14.000 --> 0:17:17.240 Yeah, we like to have you know, in the seven 0:17:17.240 --> 0:17:21.400 to eight range lesson rooms and to have two drum rooms, 0:17:21.640 --> 0:17:25.520 so those will be double kits, and then our rehearsal 0:17:25.600 --> 0:17:28.959 rooms will have drum kits in them. And we actually 0:17:28.960 --> 0:17:32.000 the rehearsal rooms will have the full back line, so 0:17:32.040 --> 0:17:36.000 our rehearsal rooms will also serve as lesson rooms at 0:17:36.040 --> 0:17:40.639 high capacity times. So so think about it as you know, 0:17:40.720 --> 0:17:47.800 ten individual lesson spaces and typically three group rehearsal areas. 0:17:48.320 --> 0:17:51.040 Okay, I've got the space, I've built it out, I've 0:17:51.040 --> 0:17:55.480 got some furniture. Do I have to also purchase musical equipment? 0:17:56.520 --> 0:17:59.919 Yeah, we help. You know, we've become a gear supply 0:18:00.600 --> 0:18:02.600 over the last six years, which has been an area 0:18:02.640 --> 0:18:06.119 of great passion and interest. So we've established relationships with 0:18:06.160 --> 0:18:10.320 all the major gear players and what we do is 0:18:10.359 --> 0:18:15.880 we provide a recommended list of gear for starting up 0:18:17.320 --> 0:18:24.880 and really for staging the school for operation. School owners 0:18:24.920 --> 0:18:29.040 are not required to buy through our resources. They typically 0:18:29.080 --> 0:18:32.919 do because we get wholesale pricing on their behalf, so 0:18:32.960 --> 0:18:36.880 they'll get that into wholesale pricing. Will help coordinate the shipment, 0:18:37.320 --> 0:18:40.879 they'll get a couple of palettes in largely from the 0:18:40.920 --> 0:18:46.439 same locations, so that helps as well. And then in 0:18:46.480 --> 0:18:50.600 addition to that, since we have these wholesale arrangements, we 0:18:51.000 --> 0:18:55.919 also can resell to students, so we might have you know, 0:18:57.720 --> 0:19:00.199 I come from an old retail family, so there's the 0:19:00.240 --> 0:19:02.640 phrase one to show, one to go, which may ring 0:19:02.680 --> 0:19:05.600 a bell. You know. We have that kind of mentality 0:19:05.640 --> 0:19:09.800 for key, high moving units like a starter pack, a 0:19:09.880 --> 0:19:15.840 fender or epiphone starter pack or drum pad and sticks. 0:19:16.440 --> 0:19:19.840 But we can get everything up to a Moog grandmother 0:19:21.080 --> 0:19:27.359 if if our customers need it. And so yes, we 0:19:27.520 --> 0:19:34.080 are a conduit for really really competitively priced gear. We 0:19:34.160 --> 0:19:37.520 see that as a meaningful growth opportunity for us going forward. 0:19:39.080 --> 0:19:43.040 What a local retailers in guitar center, major retailers say 0:19:43.080 --> 0:19:45.000 about you going direct and cutting them. 0:19:44.840 --> 0:19:48.960 Out, well, the reality is that you know the the 0:19:50.560 --> 0:19:54.280 I will project how I feel about them, and I 0:19:54.320 --> 0:19:57.119 hope they feel the same way about us. Which is 0:19:57.119 --> 0:20:02.120 that so much about driving assumption and creating a new 0:20:02.160 --> 0:20:05.320 player that will be a long term customer for any 0:20:05.359 --> 0:20:10.920 of ours is about continuity of performance and continuity of commitment. 0:20:11.680 --> 0:20:16.159 So in the short term. Is there a risk that 0:20:16.200 --> 0:20:22.600 I'm going to cannibalize Guitar Center's fender starter pack? Well, yes, 0:20:22.680 --> 0:20:26.840 there's a zero sum game for the initial buyer. But 0:20:27.640 --> 0:20:29.600 you know the old joke, what's the right number of 0:20:29.640 --> 0:20:33.040 guitars to buy? The answer is always is one more. 0:20:33.600 --> 0:20:38.800 And ultimately, guitar Center has a really important role to play. 0:20:38.920 --> 0:20:43.760 Sweetwater is a really important role to play. And since 0:20:43.840 --> 0:20:48.560 we are meeting customers at different parts of that customer journey, 0:20:48.600 --> 0:20:52.400 and since we're physically located in really really different places, 0:20:52.800 --> 0:20:55.639 a guitar center can never be located where a school 0:20:55.640 --> 0:20:58.919 of Rock is because it's hard to find thirty thousand 0:20:58.960 --> 0:21:04.400 square feet on you know, the upper east side of 0:21:04.640 --> 0:21:07.800 New York on seventy first, whereas we can get a 0:21:07.800 --> 0:21:11.880 two thousand square foot location. I think the other thing 0:21:12.040 --> 0:21:17.320 is that, you know, our view is that we play 0:21:17.359 --> 0:21:23.320 a really important role where which is diminishing in all 0:21:23.400 --> 0:21:28.760 the retail environments, which is very high touch, high consultative sale. 0:21:29.400 --> 0:21:33.240 So we have the opportunity where we're spending three hours 0:21:33.320 --> 0:21:38.880 with our students a week. Even guitar centers, most fervent 0:21:39.000 --> 0:21:42.199 shoppers don't stay there for three hours a week, So 0:21:42.240 --> 0:21:47.080 we have this incredible opportunity to really do that kind 0:21:47.160 --> 0:21:55.360 of Hogwarts matching exercise where we help a student meet 0:21:55.440 --> 0:22:02.200 it's their perfect guitar, bass, keyboard, microphone, et cetera. And 0:22:02.400 --> 0:22:04.760 I think that's something we're in a unique position to 0:22:04.840 --> 0:22:08.679 do when we're having that much continuity, because we have 0:22:08.800 --> 0:22:12.560 mentors musicians themselves, and they can say, this is why 0:22:12.560 --> 0:22:14.800 I play the Fender, this is why I pay play 0:22:14.840 --> 0:22:19.679 this SG, this is why I choose gretch, And I 0:22:19.720 --> 0:22:21.760 think that that's a role we earn a position to 0:22:21.840 --> 0:22:26.280 uniquely play that. Having been said, no one likes competition, 0:22:26.800 --> 0:22:30.399 I'm not. I don't. I'm mindful of the fact Guitar 0:22:30.520 --> 0:22:36.240 Center teaches lessons and their music and Arts subsidiary teaches lessons. 0:22:37.040 --> 0:22:40.040 But if they're doing a great job and lessons, that's 0:22:40.119 --> 0:22:43.400 great for society. So in the grand scheme of things, 0:22:43.400 --> 0:22:44.159 I'm okay with that. 0:22:51.440 --> 0:22:58.320 Okay, In this transaction, in selling merchandise to the store 0:22:59.040 --> 0:23:03.800 and to the customer, you are taking a spif you are. 0:23:04.000 --> 0:23:07.240 This is a profit center, however minimal for the School 0:23:07.280 --> 0:23:07.640 of Rock. 0:23:08.720 --> 0:23:11.560 It's a profit center for our schools, and it's we 0:23:11.680 --> 0:23:15.920 largely just cover our cost at the retail level. We've 0:23:16.000 --> 0:23:21.280 chosen in the configuration of our economics, We've chosen to 0:23:21.440 --> 0:23:26.240 participate the wholesale level, so we don't actually charge a 0:23:26.320 --> 0:23:30.480 royalty in our sales uh to for franchisees. So we 0:23:30.520 --> 0:23:33.480 want them to capture as much of the gross margin 0:23:33.560 --> 0:23:40.520 as possible. And franchisees within the limits of map pricing, 0:23:40.600 --> 0:23:44.240 which you're familiar with, you know, they are allowed to 0:23:44.240 --> 0:23:50.640 have certain flexibility to h to charge and advertise promote 0:23:50.680 --> 0:23:53.280 certain pricing. We want to preserve as much of that 0:23:53.320 --> 0:23:56.280 margin for them as we can. So I don't see 0:23:56.320 --> 0:24:06.119 for us the idea of massive EBITDA transformation valuation transformation 0:24:06.240 --> 0:24:13.199 by becoming a conventional retail player. Rather, I want to 0:24:13.240 --> 0:24:16.440 reduce the friction to make sure that we're the best, 0:24:16.560 --> 0:24:23.000 high touch, customized matchmaker between a young artist and their needs. 0:24:23.280 --> 0:24:26.159 By the way this applies to our teachers too, is 0:24:26.200 --> 0:24:29.119 that our teachers are all gigging musicians. We want to 0:24:29.119 --> 0:24:31.960 put the best gear in their hands, and we may 0:24:32.000 --> 0:24:33.720 be the only way they're going to get their hands 0:24:33.760 --> 0:24:39.320 on an American strat as opposed to a lesser model, 0:24:39.800 --> 0:24:41.800 because we can get it to the meta price, it's much. 0:24:41.760 --> 0:24:46.359 Lower Okay, so I'm opening a school of rock other 0:24:46.440 --> 0:24:48.679 than the physical plant, how much am I going to 0:24:48.720 --> 0:24:49.840 have to spend on equipment? 0:24:51.320 --> 0:24:54.240 Our equipment tends to be in the sort of twenty 0:24:54.280 --> 0:24:59.840 to twenty five thousand dollars range, and naturally, at retail 0:25:00.040 --> 0:25:03.000 value that would be a much higher number. But we 0:25:03.160 --> 0:25:06.239 tend to try to outfit the schools for everything they 0:25:06.280 --> 0:25:10.560 need to operate in that zone in terms of gear. 0:25:11.000 --> 0:25:14.080 In terms of gear, naturally there'll be things like soundproofing, 0:25:14.200 --> 0:25:20.920 there'll be millwork, furniture, et cetera, et cetera, And depending 0:25:21.119 --> 0:25:25.159 that's mostly driven by square footage, your buildout will be 0:25:25.240 --> 0:25:30.760 directly proportional to square footage, and typically, you know, it'll 0:25:30.800 --> 0:25:33.840 be a little over one hundred a little over one 0:25:33.880 --> 0:25:37.040 hundred dollars per square foot to build out a school 0:25:37.040 --> 0:25:40.159 of rock in terms of construction in some markets, that 0:25:40.200 --> 0:25:42.119 can be up to one twenty one thirty. 0:25:42.800 --> 0:25:44.720 Let's say I walk in the front door with my 0:25:44.920 --> 0:25:49.760 parent and I'm sold, but I have no equipment. Is 0:25:49.800 --> 0:25:52.600 there literally equipment in the store that I can buy 0:25:52.680 --> 0:25:55.760 right that day or is it ordered? How do I 0:25:55.800 --> 0:25:57.240 get the equipment in my hands? 0:25:57.960 --> 0:26:01.719 In most cases, our schools that are committed to our 0:26:01.760 --> 0:26:06.320 gear program, they'll have two or three of the fast 0:26:06.359 --> 0:26:10.200 moving units in each instrument, so they'll have a starter 0:26:10.359 --> 0:26:13.200 guitar pack, they'll have a starter based pack. 0:26:14.600 --> 0:26:14.959 UH. 0:26:15.000 --> 0:26:18.840 They typically wouldn't inventory keyboards because it's just such high 0:26:18.920 --> 0:26:22.400 cube it's hard in a small space to keep those around. 0:26:23.640 --> 0:26:28.760 They certainly will have drums, drum sticks and UH and 0:26:30.880 --> 0:26:34.880 practice pads and practice pads thank you. And then we'll 0:26:34.880 --> 0:26:40.040 have mic and amp solutions, starting solutions with partners like 0:26:40.119 --> 0:26:47.159 Shore who are who are great partners. That having been said, 0:26:49.359 --> 0:26:54.720 many of our students start their journey before selecting their instrument, 0:26:54.840 --> 0:26:58.200 and we're very very much in favor of that. So 0:26:58.280 --> 0:27:01.400 our our way in by our little or we call 0:27:01.440 --> 0:27:04.879 our Little Wing program our Rookies program. This is a 0:27:04.920 --> 0:27:09.040 group learning environment where we're giving them the opportunity to 0:27:10.240 --> 0:27:13.920 speed date with a range of instruments, so they may 0:27:14.000 --> 0:27:18.920 come in with a bias to pick their forever instrument. 0:27:19.480 --> 0:27:21.560 But we think that's actually one of the things that 0:27:21.600 --> 0:27:28.400 has impeded success in music education is leaping too quickly 0:27:28.920 --> 0:27:31.440 to an instrument that ends up not being the right 0:27:31.480 --> 0:27:36.080 one emotionally or physically for the student. So it's a 0:27:36.200 --> 0:27:40.480 very rare circumstance where immediately someone comes in and they 0:27:40.520 --> 0:27:43.359 don't have an instrument and they need it immediately. But 0:27:43.480 --> 0:27:46.040 when we do, we can get it with great haste. 0:27:46.760 --> 0:27:51.520 Let's say that you know, I'm a dedicated student. Are 0:27:51.560 --> 0:27:54.959 you selling strings, straps picks that kind of stuff? 0:27:55.080 --> 0:28:00.239 We are? We are, And that's pretty universally provided all 0:28:00.280 --> 0:28:03.719