MI Leaders Respond to Gibson's Chapter 11 Filing

In the aftermath of a tumultuous week that saw Gibson Brands file for Chapter 11 bankruptcy protection, industry leaders took time to comment on the future of the company.

Gibson filed for bankruptcy protection on May 1 after failing to renegotiate more than $500 million in debt that was set to mature this summer. The company has offered a turnaround plan that would give company lenders equity ownership in a "change of control" transaction. In addition, the plan calls for Gibson to "wind down" its consumer electronics business and refocus on its core business of making stringed instruments.

In response to the news, Richard Ash, president of Sam Ash Music, sent a note out to the entire company that said, "By now, everyone who plays the guitar has heard about the Gibson guitar bankruptcy. There are occasions where a bankruptcy or Chapter 11 filing means that the company ceases to exist. That is not the case with Gibson. The only real change to Gibson will be a change of ownership. Gibson the 'Guitar' manufacturer at its core is a highly profitable company and a powerful brand with an incredible legacy. I don't think production will stop. The new ownership needs to manufacture and sell guitars. Ownership is changing due to the fact that Gibson had taken on additional debt to purchase companies outside the guitar industry. The people they borrowed the money from now own the company. Basically the Gibson Guitar Company is alive and well and will probably emerge as a better and stronger company. Sam Ash had its biggest year ever with Gibson in 2017. The guitar business as a whole is surprisingly strong. Make sure your customers understand."

Those sentiments were echoed by other Gibson retailers.

"Based on Gibson's press release announcing its bankruptcy, we do not expect any substantial disruption to our business," said Jeannine D'Addario, chief marketing, communications and customer officer at Guitar Center. "Gibson has noted that its restructuring plan includes a focus on maintaining its core musical instruments business with minimal disruption. Gibson is a premium brand within guitars that continues to perform well and despite media reports suggesting the contrary, guitars remain a central and growing interest for musicians with sales stable or increasing for most of the past decade. In fact, Guitar Center's guitar sales over the past year have been the strongest we have seen in our history. We think this bodes well for the future and for future generations to develop an interest in and love for playing music."

From the standpoint of Paul Decker, owner of Music Villa in Bozeman, Montana, "The Gibson brand is so strong that I think, whatever happens, the company is going to be better off than it ever was."

Decker said he was "thrilled" to see a change in ownership and management.

"I think everything is going to be good once they figure out who's going to fund it, and who's going to take over," he said. "As far as I hear, they're going to be investing money right back into the guitar divisions to make sure their vendors are paid. You can't collapse that. The only part of the company making money is the guitar division."

Martin's Viewpoint

While the news brought cheers for fans and employees of Gibson's iconic stringed instruments as well as other Gibson brands like Baldwin pianos, KRK and Cerwin Vega studio monitors, the news put a dark cloud over Gibson Innovations, a consumer electronics subsidiary that court documents said would be "wound down." That division includes such consumer electronics brands as Philips and Onkyo.

In hearing from one of Gibson's leading competitors, Chris Martin, the CEO and chairman of C.F. Martin & Co., said, "I wish the new owners luck. They have some work to be done that I don't know if they're aware of. I don't know if they know that there may be some quality issues on the instrument side and some relationship issues on the dealer side. It ain't going to fix itself."

He added that while the emphasis of the reorganization has been on Gibson bolstering its stringed instrument business, he wondered what will happen to the consumer electronics business.

"I wish they would talk a little more about the companies that they're sort of going, "Well, all that Philips stuff, all that Onkyo stuff, it doesn't matter anymore." There are real people who work there. I think there are real human beings who work in offices and factories who are going to be extremely adversely affected by this.

"The new investors seem to be kind of cavalier about 'We're going to wind that down, and we're not going to talk about it anymore.' That disappoints me, personally, that Henry made a commitment and now the new investors are going to say, 'Well, that didn't work out too well. See ya!' It might have been a bad decision, but now you've made this bad decision worse, if, in fact, what you're going to do is close these factories and tell everyone, 'You're fired.' That's just my opinion."

A Lawyer's Thoughts
If there is anyone in the music products industry who knows Gibson intimately, it's attorney Ron Bienstock. As chair of intellectual property for Scarninci/Hollenbeck Attorneys At Law, Bienstock has represented myriad guitar makers in litigation with Gibson over the past two decades.

For Bienstock, the reorganization was long overdue. What he hopes is not lost is the larger picture on the health of the guitar market.

"The most important aspect of the Gibson story is that it's not the harbinger of doom," Bienstock said. "That a company can make bad decisions and pay the penalty and still just be in Chapter 11 — It's amazing that they're not getting closed out. Any group of those creditors could have pushed them into involuntary bankruptcy. Any group of them.

"The public needs to know that this situation is a series of two decades of bad decisions, and that the industry itself has been strong. Guitar sales are up. Competition is good.

"Everything is at a quality level that is staggeringly good. Here's the classic question people ask, 'Well, if Gibson goes down, what happens?' The answer is buy a Collings. It's the better Gibson. If Fender was going down, buy a Sadowsky. It's the better Fender.

"[The industry makes] better guitars now than we've ever made. And we have to tell people that. Products on every level. Guitars, pedals, cables, amps, everything is better than it ever was.

"I don't want the Gibson bankruptcy to be seen as a weakness in the guitar business. It's a weakness in one leader, to some extent, he should take full blame, in my opinion. People in his own company weren't able to tell him that, 'You're heading for the iceberg, and buying all those other companies will not make you Steve Jobs.' When you try to become something you're not, this is what happens."

To read previous stories on Gibson's bankruptcy, click on the following links:

Gibson's Trail of Creditors
Gibson's Statement on Bankruptcy Filing
Gibson Files for Bankruptcy