Help understanding shared iTunes library on external drive

Here is what I tried to accomplish:

merge two iTunes libraries (currently on two MacBooks) and store all music files on external drive, but keep each MacBook's custom playlists intact - the idea is to make space on each laptop.

I started comparing libraries on each laptop with the external iTunes library and copied missing media files/folders over to the external drive.

Question: is it save now to delete media folders from each laptop and just keep the library files in each laptops Music > iTunes folder?

Question 2: which folder do I select when changing to new iTunes Media folder in Preferences?

There is no iTunes Media folder on the external drive.

The folders Music, Movies, Podcast etc just reside in a folder called iTunes (which also holds some library files)