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)

Launch iTunes with the Shift key held down, click on Choose Library, and navigate to that instance of the library.
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