Speaker 1: Get in touch with technology with tech Stuff from how
Speaker 1: stuff works dot com. Hey there, and welcome to tech Stuff.
Speaker 1: I'm your host, Jonathan Strickland. I'm an executive producer and
Speaker 1: how Stuff Works and I love all things tech. And
Speaker 1: in the last episode I talked about the founding of
Speaker 1: the Gibson Guitar Company, and that yet about how Orville
Speaker 1: Gibson kind of sort of founded the company that bore
Speaker 1: his name. I say kind of sort of because he
Speaker 1: was a luthier, someone who makes mandolins and guitars, and
Speaker 1: sought out the help of some businessmen in Calamazoo, Michigan,
Speaker 1: after he started getting more requests for his work than
Speaker 1: he was able to provide for it was it was great,
Speaker 1: his work was in demand, but he wanted to to expand,
Speaker 1: so he got together with a group of businessmen who
Speaker 1: all made a business that they called a the Gibson Company,
Speaker 1: um specifically the Gibson Mandolin Guitar Manufacturing Company, and Orville
Speaker 1: was not a partner in that company. Instead, he sold
Speaker 1: a patent to the group and he got a kind
Speaker 1: of a pension from them, but other than that he
Speaker 1: was not heavily involved in the business. After a couple
Speaker 1: of years. I also talked about acoustic guitars and how
Speaker 1: they work. I talked about electric guitar pickups and how
Speaker 1: they work, as well as the evolution of Gibson in
Speaker 1: its first six decades are so arguably seven decades depending
Speaker 1: upon how you're counting. Now today we're going to look
Speaker 1: at how Gibson has changed hands over the years leading
Speaker 1: up to the company declaring bankruptcy in two thousand eighteen.
Speaker 1: So what happened and is Gibson alone in this or
Speaker 1: are other major guitar brands also facing financial difficulty? Well, first,
Speaker 1: we have to backtrack just a bit. So in the
Speaker 1: last episode I ended by talking about what was going
Speaker 1: on in Gibson in the nineteen sixties. But earlier, back
Speaker 1: in nineteen Gibson's ownership changed hands. A company called Chicago
Speaker 1: Musical Instruments or c m I acquired Gibson, and the
Speaker 1: founder of c m I was a guy named M. H. Berlin.
Speaker 1: Berlin was born in eighteen ninety five in Romania, and
Speaker 1: his family immigrated to the United States in the early
Speaker 1: nineteen hundreds. They moved to Chicago. Berlin attended school through
Speaker 1: the eighth grade and then left school to work at Wurlitzer's,
Speaker 1: a retail store in Chicago. After serving in the U. S.
Speaker 1: Navy during World War One, Berlin would return to the
Speaker 1: United States and, after working for a musical instruments company
Speaker 1: as a salesman, would eventually be the founder of CMI
Speaker 1: in nineteen twenty. In nineteen forty four, only one of
Speaker 1: the original five Kalamazoo businessmen who founded Gibson was still alive.
Speaker 1: That was John Adams, not the president, and he was
Speaker 1: eighty five years old. He decided he wanted to sell Gibson.
Speaker 1: C m I had own into a successful musical instruments
Speaker 1: distributor company, and Berlin's company bought out Gibson. For the
Speaker 1: next two decades, Gibson performed well in the market and
Speaker 1: introduced numerous innovations in their products. In nine, an odd
Speaker 1: merger happened. C m I, the parent company for Gibson,
Speaker 1: would merge with a company called E C L. Well.
Speaker 1: What was e C L It was a brewery and
Speaker 1: concrete company in Ecuador? What the what? Well? It was
Speaker 1: a company that was founded in Ecuador. Uh was had
Speaker 1: several different interests there, including concrete and cement as well
Speaker 1: as a brewery, So the board of e c L
Speaker 1: were really the owner of e c L. Purchased publicly
Speaker 1: available stock in c m I enough of it to
Speaker 1: assume control of the company. This is technically what we
Speaker 1: would typically call a hostile takeover, the idea that you're
Speaker 1: going through shares of stock rather than talking with leadership
Speaker 1: about a transition from one style of company to another.
Speaker 1: The chairman of v c L was a guy named
Speaker 1: Norton Stevens, and the new merged company was called Now Orleans.
Speaker 1: And Now Orland came from combining the first three letters
Speaker 1: of Norton Stephen's first name with the last three letters
Speaker 1: of MH. Berlin's last name, No Orlan. No Orlean had
Speaker 1: three main businesses. One was brewing, one was musical instruments,
Speaker 1: and the third was somewhat vaguely defined as technology. There
Speaker 1: are some accounts from Gibson employees dating around this period
Speaker 1: that suggests their new peers, their new business owners, were
Speaker 1: more focused on maximizing profits than on building high quality
Speaker 1: instruments for musicians. And it wasn't that they wanted to
Speaker 1: make substandard products, but rather they just didn't have an
Speaker 1: understanding of what it takes to make a good music instrument.
Speaker 1: They weren't Louthier's, they weren't even musicians necessarily, and according
Speaker 1: to Stan Rendell, who was serving as the president of
Speaker 1: Gibson at the time, the new way of doing business
Speaker 1: ended up hurting Gibson and included a fundamental change in
Speaker 1: the way the company approached products. Before the acquisition, Gibson
Speaker 1: had a single customer that was c m I. Gibson
Speaker 1: didn't sell directly to people. Gibson sold their products to
Speaker 1: their parent company, c m I, which was a distributor.
Speaker 1: So here's how it would work. Gibson would manufacture musical
Speaker 1: instruments and then essentially would sell them to c m
Speaker 1: I at a profit. So whatever it cost Gibson to
Speaker 1: make the musical instrument, they would mark that up a
Speaker 1: bit so they can see see a profit sell that
Speaker 1: to c m I. C m I would distribute those
Speaker 1: musical instruments at a marked up price to make their profit.
Speaker 1: So each stage, the price of the guitar or whatever
Speaker 1: it may be, it was a mandolin or avenge or
Speaker 1: whatever would go up. So from Gibson to c m I,
Speaker 1: price goes up. From c m I to say a
Speaker 1: retail store somewhere the price goes up, and the price
Speaker 1: goes up a little bit more to the end customer,
Speaker 1: the musician. So that explains partially why these guitar prices
Speaker 1: would get pretty high eventually, because you're talking about several
Speaker 1: different middlemen that have to get their cut before it
Speaker 1: ever gets to the customer. If Gibson were selling directly
Speaker 1: to the customer, the prices might be a little lower,
Speaker 1: not necessarily significantly lower. Because Gibson was always in the
Speaker 1: business of making high end guitars. Their guitars were known
Speaker 1: as UH some of the flagships in especially in electric guitars.
Speaker 1: It was essentially Gibson and Fender were the two big names,
Speaker 1: and so they could charge a premium because they were
Speaker 1: selling the premium products. Everyone else was kind of selling
Speaker 1: either slightly lower cost, lower quality ones or knockoffs, and
Speaker 1: that was about it. Well, the Gibson would take the
Speaker 1: profit that they made by selling to c m I
Speaker 1: and they would use that money to fund research and development.
Speaker 1: They would give raises to people who were innovating a
Speaker 1: musical instrument design, they would improve manufacturing processes. Essentially, they
Speaker 1: would reinvest their profit back into the business, back into
Speaker 1: the people in the business, and it was a good
Speaker 1: way to create an incentive to do good work. However,
Speaker 1: upon normilists becoming the new reality, things would change. Nor
Speaker 1: Leists operated Gibson as a cost center, meaning normilists would
Speaker 1: just pay the bills as Gibson incurred them. So instead
Speaker 1: of Gibson trying to balance everything by taking the revenue
Speaker 1: it got from c m I and then paying off
Speaker 1: whatever bills it had and investing in the business wherever
Speaker 1: it needed to, nor Less would just say, oh, well,
Speaker 1: if you incur age expense, we'll pay it. There was
Speaker 1: no profit model for Gibson to pursue anymore, and according
Speaker 1: to Randell, this removed any incentive to innovate and work hard.
Speaker 1: He said, if your bills are being paid, whether you
Speaker 1: work hard or not, your inclined not to work very hard.
Speaker 1: So that was kind of an interesting point. Now, I
Speaker 1: will say that that doesn't necessarily hold true in all
Speaker 1: venues where if your bills are paid, you aren't inclined
Speaker 1: to work hard. But that but if it's if it's
Speaker 1: a thing where uh you know, in this particular arrangement
Speaker 1: that Gibson had with new or Less, essentially that does
Speaker 1: seem to be one of the reasons why quality started
Speaker 1: to slip, but the company did soldier on. It produced
Speaker 1: a few instruments in that era that we're not praised
Speaker 1: very much, possibly due to the new focus on the
Speaker 1: streamline manufacturing process to maximize output. Some employees later expressed
Speaker 1: opinions that this was at the cost of build quality.
Speaker 1: Others would say, no, we made good guitars, they just
Speaker 1: they just weren't the best, most innovative designs. But things
Speaker 1: really took a downhill turn in the eyes of guitar
Speaker 1: lovers in the mid to late seventies. That's when Gibson
Speaker 1: began producing guitars that got what we'll call a mixed reception.
Speaker 1: That's being kind. There are certainly some fans of Gibson's
Speaker 1: guitars from this era, but there are a lot of
Speaker 1: outspoken critics as well. In fact, I say that the
Speaker 1: critics far outnumber the fans. So let's take the Marauder
Speaker 1: as an example. Gibson introduced this line in nineteen seventy
Speaker 1: four and went into mass production the following year. It
Speaker 1: was a departure for Gibson designs as it featured a
Speaker 1: bolton neck Gibson guitars up to that point had been
Speaker 1: set in neck joint guitars being the next would slot
Speaker 1: into the body of the guitar and then would be
Speaker 1: secured by glue. So if you remember in the first
Speaker 1: episode I talked about the anatomy of a guitar, you
Speaker 1: have the body, that's the part that has the sound
Speaker 1: hole in it. For an acoustic guitar. You have the
Speaker 1: neck that's the part that joins onto the body, and
Speaker 1: it's the part that the strings are are strung against
Speaker 1: and have frets where you can press the string against
Speaker 1: the frets to make different notes. And then you have
Speaker 1: the head of the guitar. That's where these strings attached
Speaker 1: to the tuning bags and you can tune the strings.
Speaker 1: So where the neck and body would meet, you could
Speaker 1: do what is called a set in neck joint, where
Speaker 1: it has sort of the seamless look to it, where
Speaker 1: the neck of the guitar sets into the body of
Speaker 1: the guitar. But the Marauder was different. It was a
Speaker 1: bolt on, which is what it sounds like. Once you
Speaker 1: fit the neck to the guitar body, you secure the
Speaker 1: neck to the body with screws or bolts, so Fender
Speaker 1: guitars were frequently bolt on neck guitars and Gibson had
Speaker 1: usually opted for set in neck guitars, so the Marauder
Speaker 1: was a new direction. Some people said, oh, they're kind
Speaker 1: of copying Fender, and some guitars said that it actually
Speaker 1: sounded more like a Fender guitar than a Gibson guitar,
Speaker 1: which was due to the difference in the pickup that
Speaker 1: they used. So if you remember in my last episode
Speaker 1: I talked about what a pickup is. I'll talk a
Speaker 1: little bit more about it again in a second, but
Speaker 1: Gibson pickups have sort of a more mellow sound to
Speaker 1: them typically than Fender ones do. Fenders have a little
Speaker 1: more not not twangy, but there's a little more of
Speaker 1: a metallic sound to Fender pickups. And it's not that
Speaker 1: one is better than the other necessarily. They give off
Speaker 1: different qualities of sounds, So it all depends upon what
Speaker 1: kind of sound you want to go for, what is
Speaker 1: the tone that you're looking for, and that would help
Speaker 1: determine which pickup you would most want to go with.
Speaker 1: It's not necessarily that the Gibson model was superior Defender.
Speaker 1: It was just different. But the marauder was also a
Speaker 1: bit of a Frankenstein's monster. The marauder had the body
Speaker 1: of a Less Paul edition Gibson guitar, so it was
Speaker 1: shaped in the same way as a less Paul Gibson,
Speaker 1: but the head at the end of the neck was
Speaker 1: not from a Less Paul Asian guitar. It was from
Speaker 1: a Flying V guitar, so it was a different style
Speaker 1: head than what you would normally see with that style
Speaker 1: of body. And the guitar had a pair of humbucker pickups. Now,
Speaker 1: I mentioned the humbucker in the last episode, but I
Speaker 1: did not go into much detail. So let me give
Speaker 1: you a quick rundown. Now, as I said in the
Speaker 1: last episode, electric guitars have at least one coil of
Speaker 1: conductive wire, typically wrapped around a permanent magnet, and the
Speaker 1: strings on electric guitar are ferromagnetic, and the area above
Speaker 1: the picnic pickup gets magnetized just through proximity. So because
Speaker 1: those strings are close to a permanent magnet, they get
Speaker 1: a little They're magnetized to a small degree, and as
Speaker 1: those strings vibrate, they create a fluctuating magnetic field over
Speaker 1: the coil of conductive wire. That's inside the pickup. This
Speaker 1: induces a change in voltage and thus current to flow
Speaker 1: through this coil of conductive wire. That current can be
Speaker 1: sent out to an amplifier and then two speakers to
Speaker 1: produce sounds. You can also do lots of effects on
Speaker 1: the signals and create all sorts of different things like
Speaker 1: distortion and stuff. But what does that have to do
Speaker 1: with a humbucker. Well, I'll tell you in just a second,
Speaker 1: but first let's take a quick break to thank our sponsor.
Speaker 1: A humbucker is a type of a double coil pickup
Speaker 1: in which you have one coils magnets with their north
Speaker 1: poles pointing up towards the strings, and the other coils
Speaker 1: magnets have their south poles facing up towards the strings.
Speaker 1: So that's where we get the double coils. Now, you
Speaker 1: can have multiple magnets within the coils, but you only
Speaker 1: have two coils, but the two coils connect together out
Speaker 1: of phase. So why would you do this? Why would
Speaker 1: you have one set one coils magnets with the north
Speaker 1: pole facing up one coils magnets with the south pole
Speaker 1: facing up, and why the heck connect them out of phase? Well,
Speaker 1: as it turns out, can act of coils aren't just
Speaker 1: good at picking up magnetic fluctuations. They are good at that,
Speaker 1: but they're good at other things too, Like they're good
Speaker 1: at being antenna in general, and they can pick up
Speaker 1: all sorts of stuff which can produce a hum in
Speaker 1: an outgoing signal from the guitar. So you could have
Speaker 1: a guitar plugged into an amplifier and you can hear
Speaker 1: a hum from the guitar even though you're not doing
Speaker 1: anything with the guitar. There's that sort of distortion that's
Speaker 1: coming in this little signal, and it can interfere with
Speaker 1: the sounds you want to create with your guitar, because
Speaker 1: once you amplify a signal, that hum becomes audible, and
Speaker 1: chances are it's not what you want people to hear.
Speaker 1: The humbucker, as the name implies, bucks the hum by
Speaker 1: putting those two connected coils out of phase. Now allow
Speaker 1: me to explain. By connecting the coils out of phase,
Speaker 1: the two coils can eliminate incoming distortion signals. Now, this
Speaker 1: is sort of how noise canceling headphones work. Visualize a
Speaker 1: sound wave with peaks and val so the way we
Speaker 1: typically think of sound waves where we've plotted against an
Speaker 1: x y axis, and we've got those nice smooth curves
Speaker 1: that represent the amplitude of the uh. The height represents
Speaker 1: the amplitude of the sound wave, and the length of
Speaker 1: that represents sort of the well the wavelength and then
Speaker 1: ultimately the frequency if you have any sort of designation
Speaker 1: of time on there. So visualize the sound wave with
Speaker 1: peaks and valleys. That's a really steady tone, so it's nice.
Speaker 1: And even now imagine you have a second wave identical
Speaker 1: to the first. It's got the exact same wavelength, that's
Speaker 1: got the exact same amplitude. But now imagine you offset
Speaker 1: it so that if you overlay the second wavelength or
Speaker 1: second wave on top of the first wave, the peaks
Speaker 1: of one match with the valleys of the other, and
Speaker 1: vice versa. So where wave one is at its highest
Speaker 1: most point, wave two is as lowest most point, and
Speaker 1: vice versa. These two waves cancel each other out. The
Speaker 1: dips of one wave match the peaks of the other wave,
Speaker 1: and you end up with a straight line. Mathematically speaking,
Speaker 1: and in fact, as far as actual sound is concerned,
Speaker 1: they cancel each other out. You you wouldn't hear anything,
Speaker 1: so any incoming distortion signal would be picked up by
Speaker 1: both coils. And you have one that's with these magnets
Speaker 1: facing north and one that's with the magnets facing south,
Speaker 1: and the two coils are connected out of phase. So
Speaker 1: once the connections come in, you get these the noise
Speaker 1: canceled out. So why doesn't the humbucker do the same
Speaker 1: thing to the signals it picks up from the strings.
Speaker 1: It's canceling out noise. Why doesn't can't Why doesn't it
Speaker 1: cancel out the actual playing? Well, this has to do
Speaker 1: with that old Star Trek trick of reversing the polarity.
Speaker 1: So for the purposes of just eliminating distortion, the north
Speaker 1: south designation of the magnets doesn't matter so much. That's
Speaker 1: not really what's important. What's important is the fact that
Speaker 1: the two coils are out of phase. But in order
Speaker 1: to actually get sound from this electric guitar, that north
Speaker 1: south orientation matters a lot. So one coil has the
Speaker 1: north pole orientation towards the strings, one coil has the
Speaker 1: south pole orientation towards the strings. That means the direction
Speaker 1: of alternating voltage of one coil is opposite that of
Speaker 1: the other. Coil, but you've connected the two coils out
Speaker 1: of phase, so this effectively flips one signal so that
Speaker 1: now you have an additive output rather than a canceled one. So,
Speaker 1: in other words, all those peaks and valleys I was
Speaker 1: talking about before they line up as opposed to offsetting
Speaker 1: each other, they they are set up so that they
Speaker 1: are directly lined up with one another because of that
Speaker 1: out of phase connection. That's what flips that last switch
Speaker 1: to make sure that they're lined up properly. This dramatically
Speaker 1: improves your signal to noise ratio. You reduce hum and
Speaker 1: you hear the signal much more clearly. So the humbucker
Speaker 1: was a really clever UH innovation, and it wasn't necessarily
Speaker 1: it wasn't just developed at Gibson. It's that Gibson really
Speaker 1: um adopted the humbucker as their approach to pickups, as
Speaker 1: opposed to something like the Fender Stratocaster line, which used
Speaker 1: a single coil pickup. The position of the humbucker on
Speaker 1: the body of the guitar also matters. Many guitars will
Speaker 1: actually have multiple pickups. They'll have them positioned at different
Speaker 1: points along the body of the guitar. Underneath the strings.
Speaker 1: Typically you might find one with two pickups. One would
Speaker 1: be positioned closer to the neck and one closer to
Speaker 1: the bridge, And those guitars typically have a switch or
Speaker 1: a knob that allows you to go from one or
Speaker 1: the other, or even blend the two together, and you
Speaker 1: get a different quality of sound that way. So if
Speaker 1: you switch it to the neck, you're gonna be able
Speaker 1: to tell the difference than if it were at the
Speaker 1: bridge before. And of course there's some that even three
Speaker 1: pickups where you've got one in between those other two,
Speaker 1: and you can get all sorts of different combinations, and
Speaker 1: it all ends up affecting the tone of the of
Speaker 1: the sounds you're making. You're still creating the same notes,
Speaker 1: the frequencies you create remain the same, but the actual
Speaker 1: tone the feel of the sound changes, and it's very
Speaker 1: hard to put it into words. It's much easier if
Speaker 1: you go and find videos where people are showing the
Speaker 1: difference between the different pickups, then you can really perceive
Speaker 1: it much more easily. It's a lot harder to just
Speaker 1: put into words. Anyway. Back to Gibson's guitars, the marauder
Speaker 1: was what we were talking about a second Ago. But
Speaker 1: in addition to the Marauder, Gibson released guitars like the
Speaker 1: Gibson S One, which had a single coil pickup made
Speaker 1: it sound more like a Fender Um. Then you also
Speaker 1: had the Gibson Corvus, which is a hard one to
Speaker 1: describe physically. The body of the Corvus was meant to
Speaker 1: look like a bird. Corvus actually means crow in Latin,
Speaker 1: but a lot of musicians had trouble visualizing the crow
Speaker 1: from the guitar design because it's somewhat abstract, So instead
Speaker 1: they referred to this guitar as Gibson's can opener because
Speaker 1: I had kind of a hook look to it, which
Speaker 1: made it look like an old fashioned manual can opener.
Speaker 1: You need to look at a picture of one of
Speaker 1: those to kind of get an idea of why they
Speaker 1: called it this thing. Again, this isn't to say these
Speaker 1: instruments didn't have fans. There are some people who love
Speaker 1: these guitars, but the general consensus was that Gibson was
Speaker 1: losing its way, and Gibson was not unique in this position.
Speaker 1: In the nineties sixties, electric guitars were incredibly popular. The
Speaker 1: music of the time was very heavily skewed towards electric guitars.
Speaker 1: You had a lot of different genres that were UH
Speaker 1: that were becoming very popular and some that were emerging.
Speaker 1: So you had rhythm and blues, you had UH, you
Speaker 1: had the early rock and roll guitars, you had surf rock.
Speaker 1: You had all these sort of genres coming up and
Speaker 1: and electric guitars took front and center and most of
Speaker 1: those genres. So it became an attractive asset for larger
Speaker 1: companies that were looking to diversify their holdings. They were saying, hey,
Speaker 1: you know, the electric car electric guitar craze is crazy,
Speaker 1: Let's let's invest in that. And so with Gibson, you
Speaker 1: had this brewery in Ecuador that swooped in to purchase CMI.
Speaker 1: Leo Fender of Fender Fames sold his companies to the
Speaker 1: Columbia Broadcasting System better known as CBS in nineteen sixty. Epiphone,
Speaker 1: which was another musical instruments company, was purchased by Chicago
Speaker 1: Musical Musical Instrument Company in nineteen fifty seven c m
Speaker 1: I that was the parent company of Gibson. UH. So
Speaker 1: CMI buys Gibson N four, they buy Epiphone in nineteen
Speaker 1: fifty seven, and originally the two businesses were kind of
Speaker 1: kept separate from each other under the ownership of c
Speaker 1: m I, but Epiphone would gradually end up building more
Speaker 1: and more um musical instruments that were based off Gibson designs,
Speaker 1: but at a lower cost point, using lower quality stuff
Speaker 1: maybe or maybe not as precious materials. Maybe that's a
Speaker 1: better way of putting it. They were frequently considered a
Speaker 1: sub brand of Gibson and sort of looked at as
Speaker 1: the entry level for guitars that followed the Gibson style,
Speaker 1: so that maybe you would want to go and get
Speaker 1: an epiphone before you went and got to Gibson, because
Speaker 1: Gibson's really expensive and epiphones were less so. But there
Speaker 1: are plenty of electric guitar experts who feel that this
Speaker 1: era led to some really bad decisions among major electric
Speaker 1: guitar companies, not just Gibson. They point to cost cutting
Speaker 1: measures that were meant to bring down the manufacturing expense
Speaker 1: for guitars, to make them easier to produce in larger numbers,
Speaker 1: and to make them less breakable. Uh really, they were saying,
Speaker 1: why what can we do to make these cheaper? To produce,
Speaker 1: make it easier to produce a lot of them, and
Speaker 1: to try and reduce the number of customers who bring
Speaker 1: back these instruments that are under warranty and then we
Speaker 1: have to replace something. And the way you do that
Speaker 1: typically is that you start cutting back on features. You
Speaker 1: start simplifying the guitars so that there are fewer things
Speaker 1: to break, and it's faster and easier to make them.
Speaker 1: And you might take some liberties when you're making your designs,
Speaker 1: things that a luthier would not have considered. The most
Speaker 1: frequent way I saw it referenced during my research was
Speaker 1: that the design of instruments was taken away from luthiers
Speaker 1: and musicians and handed over to accountants and beam counters.
Speaker 1: For Gibson. This era stretched into the early nineteen eighties,
Speaker 1: when two companies called Rooney Pace Group and Piezo Electric
Speaker 1: Products moved to make a hostile takeover of New Orland.
Speaker 1: Rooney Pace Group was a brokerage and private investment firm
Speaker 1: with a specialty for helping companies preparing to hold an
Speaker 1: initial pub like offering or i p O. That's when
Speaker 1: a private company turns into a publicly traded company. Piezo
Speaker 1: Electric Products was a growing company that just held its
Speaker 1: own I p O and was looking for an acquisition target.
Speaker 1: And so they joined forces and started looking around, and
Speaker 1: they settled on now Orland. Now, the management in no
Speaker 1: Orland was not keen on this idea. They attempted to
Speaker 1: fight it off. They tried to get an injunction with
Speaker 1: the courts, but the courts denied them this and ultimately
Speaker 1: no Orland would lose this fight and ceded to the
Speaker 1: two partners on August nine. Norton Stevens, who had been
Speaker 1: the head of no Orland, was bumped down to vice
Speaker 1: president and the founder of Rooney Pace, which was a
Speaker 1: guy named Randolph K. Pace, became the new chairman of
Speaker 1: the company, and one of the first things that he
Speaker 1: said he wanted to do was sell Gibson from the
Speaker 1: company's holdings, which they eventually did in January nine six.
Speaker 1: There was actually danger of Gibson just going away if
Speaker 1: no one stepped to buy them. Before I continue on
Speaker 1: with Gibson, a few more words about Pace and this
Speaker 1: hostile takeover business. Now, in the nineteen eighties, there were
Speaker 1: a string of hostile takeovers, which at the time were
Speaker 1: generally considered a legit strategy, but the takeover of No
Speaker 1: Orlan would later be viewed as damaging, expensive, and indicative
Speaker 1: of a complete lack of competence. Hostile takeover fiasco's would
Speaker 1: lead to the development of new strategies to prevent such
Speaker 1: things from happening so readily in the future, such as
Speaker 1: poison pills. Now I talked about poison pills in an
Speaker 1: earlier episode of Tech Stuff. It's just a measure that
Speaker 1: companies will take in order to discourage hostile takeover attempts.
Speaker 1: At Pace himself would later plead guilty to charges that
Speaker 1: he had secretly manipulated a brokerage firm called Sterling Foster
Speaker 1: that had been involved in securities fraud shenanigans, and uh
Speaker 1: and to the tune of like two million dollars At
Speaker 1: that point. Pace was sentenced to pay more than a
Speaker 1: hundred thirty million in restitution to investors and he got
Speaker 1: sent of eight years four months in prison. So things
Speaker 1: did not end well for Mr. Pace. As for Gibson,
Speaker 1: big changes continued to happen at that company. Around that time,
Speaker 1: Gibson shut down its historic Kalamazoo, Michigan manufacturing facility, the
Speaker 1: home of Gibson shifted from Kalamazoo to Nashville, Tennessee. It
Speaker 1: had a second manufacturing facility there, and that became the
Speaker 1: new headquarters for Gibson. The new owners of the company
Speaker 1: where David Berryman, Gary A. Zabrowski, and Henry Jessica Witz.
Speaker 1: More on them in just a second, but first let's
Speaker 1: take another quick break to thank our sponsor. Gibson's new
Speaker 1: owners bought the company for the princely sum of five
Speaker 1: million dollars. Consider for a moment that some Gibson guitars
Speaker 1: have been auctioned off for near a million dollars each. Now, granted,
Speaker 1: those are guitars that were played by famous musicians like
Speaker 1: Eric Clapton, but still it's tough to think of a
Speaker 1: company that sold premium guitars for thousands of dollars of
Speaker 1: guitar selling for five million dollars itself. In addition to Gibson,
Speaker 1: the three new business owners would lead the way to
Speaker 1: acquire the Flat Iron Mandolin Company out of Bozeman, Montana
Speaker 1: in nineteen seven and turn it into a new manufacturing
Speaker 1: plant for Gibson acoustic guitars and other instruments. In nineteen
Speaker 1: eight nine, things were looking up. The Gibson name was
Speaker 1: returning to a revered spot in the world of music.
Speaker 1: People were starting to forgive the the era of the
Speaker 1: mid seventies to early eighties, where the guitars were viewed
Speaker 1: as being of lower quality. They were starting to say, well,
Speaker 1: things look like they're back on track now, and the
Speaker 1: company continued to grow through acquisitions. Gibson would buy companies
Speaker 1: like Steinberger and Tobias Basses, Cramer Guitars, Slingerland Drums, O
Speaker 1: m I, and Baldwin Pianos over the next several years.
Speaker 1: In nine, the company celebrated one years since Orville Gibson
Speaker 1: started selling his guitars, and they introduced a new model
Speaker 1: called the Nighthawk, which would later win the Most Innovative
Speaker 1: Guitar Award at the National Association of Music Merchants trade show.
Speaker 1: The night Hawk had elements that made it again kind
Speaker 1: of sound a little bit like a Fender, and then
Speaker 1: other elements that made sound more like a Gibson. But
Speaker 1: despite all these accolades, it was never really a top
Speaker 1: selling guitar. It was discontinued by nine. Gibson would reintroduce
Speaker 1: the line a couple of times since then. They would
Speaker 1: have a little limited edition run of Nighthawk guitars, but
Speaker 1: some of them were only superficially similar to the nine model,
Speaker 1: Like some of them just looked like the old Nighthawk
Speaker 1: guitar but did not have the same sort of pickups
Speaker 1: that the original run of Nighthawks did, So they were
Speaker 1: really just Nighthawks in name and shape, but not in performance,
Speaker 1: which makes things really confusing when you start talking about guitars.
Speaker 1: It also means that if you are shopping for a guitar,
Speaker 1: this is just a good note for anybody. And this
Speaker 1: this extends beyond Gibson. If you're shopping for a guitar
Speaker 1: and you've heard about a particular model of guitar that
Speaker 1: you really like, because maybe there's a musician you admire
Speaker 1: and he or she plays that guitar, find out what
Speaker 1: year that guitar was made. Because different times throughout the
Speaker 1: history of these manufacturers, uh, they have used different types
Speaker 1: of technology in reissues of guitars, and it may turn
Speaker 1: out that if you go out and buy a new
Speaker 1: version of that same model, that it will not sound
Speaker 1: anything like the one that you are familiar with. For me,
Speaker 1: it wouldn't sound anything like anything, because I am not
Speaker 1: a musician and it would just be awful. But for
Speaker 1: my musician and friends out there, narrow it down not
Speaker 1: just to the the model and manufacturer, but the year
Speaker 1: of the guitar. Well. In the early two thousand's, Gibson
Speaker 1: introduced a new protocol called Media Accelerated Global Information Carrier
Speaker 1: or MAGIC, which is pretty cute. The company featured the
Speaker 1: protocol on a new product called the Gibson Digital Guitar,
Speaker 1: which they introduced in the late part of the first
Speaker 1: decade of two thousand. Boy, that's a really where are
Speaker 1: you wait to say? Two thousand six two thousand seven? Anyway,
Speaker 1: this guitar had your standard quarter inch jack that you
Speaker 1: could plug into an amplifier, but it also had an
Speaker 1: Ethernet port and you could plug in a CAP five
Speaker 1: cable into the either net part and then plug the
Speaker 1: other end into a PC and send signals straight to
Speaker 1: the PC. The digital guitar even has the ability to
Speaker 1: capture information from each string individually, which meant you could
Speaker 1: apply effects to specific strings and you can leave that
Speaker 1: effect off other strings. So you could add an effect
Speaker 1: on say the eastering, and leave it off of all
Speaker 1: the others. If you wanted to um, I think that's
Speaker 1: an interesting idea, and it was. It showed that Gibson
Speaker 1: was really trying to push for the next era in
Speaker 1: electric guitars, especially with this eye on how electric music
Speaker 1: electronic music was really, uh, the new thing. Digital music
Speaker 1: was big and so and still is big, but was
Speaker 1: getting big at this point, so the company was trying
Speaker 1: to get out in front of that. It did not
Speaker 1: necessarily receive a whole lot of enthusiasm from professional musicians,
Speaker 1: but there were a lot of technologies who thought it
Speaker 1: was pretty darn cool. I remember seeing it for the
Speaker 1: first time and thinking, wow, that's kind of interesting. I've
Speaker 1: never really considered having a Ethernet port on an electric
Speaker 1: guitar before Gibson started to encounter a problem that was
Speaker 1: affecting a lot of guitar companies. This was the demand
Speaker 1: for guitars. It was on the decline. It wasn't just
Speaker 1: for Gibson, it was for everybody now. Gibson, of course,
Speaker 1: again being a premium guitar man you facturer, meant that
Speaker 1: they were feeling it pretty hard, because you know, they're
Speaker 1: they're they They really relied on selling fewer guitars at
Speaker 1: a higher price, and when you're your number of orders decreases,
Speaker 1: you're gonna feel it pretty pretty heavily. More and more
Speaker 1: music was entering the digital age. More and more music
Speaker 1: was being created without any actual musical instruments being involved.
Speaker 1: You could create stuff by computer, and so uh. Guitar
Speaker 1: companies in general were facing really big problems. But in
Speaker 1: two thousand seven, Gibson would purchase Garrison Guitars, Still moving forward.
Speaker 1: Garrison was an acoustic guitar company based out of Canada,
Speaker 1: and Gibson would then introduce a technology called the Meny
Speaker 1: Tune and two thousand and eight it became something of
Speaker 1: a joke among musicians. The device consisted of a tuner,
Speaker 1: as in a little device that has a microphone in it,
Speaker 1: and it detects the frequency of a strum string. So
Speaker 1: there are lots of different kinds of tuners out there.
Speaker 1: I've used tuners before. I did say I'm not a musician,
Speaker 1: but I do play ukulele on occasion, and I have
Speaker 1: a ukulele tuner. So what happens is you play a
Speaker 1: string and the tuner detects what the frequency of the
Speaker 1: strummed string is. It compares it to what it should be,
Speaker 1: and so it starts to tell you whether you need
Speaker 1: to tune the string so that you add more tension
Speaker 1: to it and increase the pitch, or decrease the tension
Speaker 1: and decrease the pitch of the played note until you
Speaker 1: hit the exact frequency you are looking for. So if
Speaker 1: the strings frequency matches up, everything's good to go. But
Speaker 1: if not, well, the mini tune would trigger a mechanism
Speaker 1: to turn the tuning pegs of the missed tuned or
Speaker 1: miss tuned strings to get them to tune up properly.
Speaker 1: So you get this little robotic as the little tuning
Speaker 1: pegs would turn and it would put on more and
Speaker 1: more tension or less tension in order to get the
Speaker 1: the strings tuned exactly to the right note. Some musicians
Speaker 1: complained then, not only was this an unnecessary gimmick, but
Speaker 1: that it also would add several hundred dollars to the
Speaker 1: price tag of a guitar. So, in other words, they
Speaker 1: were saying that Gibson was trying to create a license
Speaker 1: to print money. They were including features no one really
Speaker 1: needed as an excuse to charge more for their guitars,
Speaker 1: And essentially the argument boils down to this Tuning a
Speaker 1: guitar is easy. You just need the tuner. You play
Speaker 1: a string, you look at the tuner. It tells you
Speaker 1: if you're too higher too low. You adjust the string,
Speaker 1: You play it again, and you do this a few
Speaker 1: times until you've tuned into the right frequency. And it
Speaker 1: might mean that you have to do it three or
Speaker 1: four times. Maybe if you have a really good ear,
Speaker 1: you don't need to do it that frequently, or you
Speaker 1: know that frequently need to get to the right the
Speaker 1: right a note. But it doesn't really take up that
Speaker 1: much time. And so the convenience of the mini tune
Speaker 1: was questionable according to these musicians, that why would you
Speaker 1: pay an extra three four hundred dollars on a guitar
Speaker 1: for something that you could easily do yourself for a
Speaker 1: third or a quarter of that price with a good
Speaker 1: tuner and just a little patience. In two thousand nine,
Speaker 1: Gibson faced some legal trouble. The company's manufacturing facilities were
Speaker 1: the center of a raid led by the United States
Speaker 1: Fish and Wildlife Services. Which might sound really weird to you.
Speaker 1: What was Gibson somehow using guitars to torture fish and wildlife? Well, no,
Speaker 1: it turned out that Gibson had purchased ebony wood from
Speaker 1: Madagascar and the would was illegally imported that would be
Speaker 1: a violation of a US law called the Lacey Act.
Speaker 1: Two years later, Gibson was rated a second time when
Speaker 1: the company imported would from India that the US government
Speaker 1: said had been labeled incorrectly when it went through US customs.
Speaker 1: Gibson's CEO, Henry jessica Witz, claimed that the government was
Speaker 1: unfairly targeting Gibson, going so far as to suggest it
Speaker 1: was due to his own alignment with the Tea Party,
Speaker 1: and then the whole thing was politically motivated and got
Speaker 1: into a big argument about property rights. The government maintained
Speaker 1: its argument that the goods were brought into the country
Speaker 1: illegally was the real reason that they targeted Gibson, and
Speaker 1: that Gibson eventually would be compelled to settle out of court.
Speaker 1: Though jessica Witz continued to protest the whole thing and
Speaker 1: got all have support from certain people in the Tea
Speaker 1: Party movement, others said no, if you break the rules,
Speaker 1: then you pay the consequences, and if you think the
Speaker 1: rules are unfair, then you lobby to have the rules changed.
Speaker 1: But you can't just be complained that you're being You
Speaker 1: know you're being held up when you are caught breaking
Speaker 1: the rules. In an effort to diversify beyond music instruments,
Speaker 1: Gibson acquired a company called the Stanton Group. By this stage,
Speaker 1: Jessica Witz was envisioning Gibson transitioning into a lifestyle brand,
Speaker 1: not just a musical instrument brand, so that would include
Speaker 1: audio equipment like monitors, loudspeakers, headphones, turntables. Gibson launched a
Speaker 1: new department called Gibson Pro Audio. Gibson would build this
Speaker 1: out further with a partnership with Kio Corporation, in which
Speaker 1: made home theater systems. So this was really Gibson saying,
Speaker 1: let's look into the consumer electronics market and try to
Speaker 1: make a spot for us there because the guitar business
Speaker 1: has been slowing down so much. In two thousand thirteen
Speaker 1: and two thousand fourteen, the company continued to push for
Speaker 1: a diversified portfolio and an increased presence in consumer electronics. First,
Speaker 1: Gibson purchased a majority stake in a Japanese electronic company
Speaker 1: called Teak Corporations U T E T e a C.
Speaker 1: Then it acquired the consumer electronics division of another company
Speaker 1: called Royal Phillips, and while making those moves, Gibson was
Speaker 1: spending a lot of money and taking out high interest loans,
Speaker 1: and that, paired with flagging guitar sales, would spell trouble
Speaker 1: for the venerable company. By two thousand eighteen, the question
Speaker 1: appeared not to be if Gibson would declare bankruptcy, but
Speaker 1: when the company's acquisitions led to a great deal of debt,
Speaker 1: that would be do. In July two eighteen, according to
Speaker 1: The New York Times, Gibson as a company brought in
Speaker 1: more than one point to billion dollars in revenue annually,
Speaker 1: but had more than five hundred million dollars in debts,
Speaker 1: and then that was going to increase if the company
Speaker 1: was unable to pay those debts. By July, the company's
Speaker 1: lenders were really getting concerned, and that concern was largely
Speaker 1: due to the fact that Gibson's earnings, the stuff that's
Speaker 1: actually around once you take the costs out of your revenue,
Speaker 1: had been dropping steadily. In Gibson had three hundred million
Speaker 1: dollars in revenue, so a fraction of that one point
Speaker 1: to billion we were just talking about but they had
Speaker 1: a twelve point nine percent earnings before taxes and interest margins,
Speaker 1: so the profit margin was twelve point nine percent. In
Speaker 1: two thousand and fifteen, Gibson had an astonishing two point
Speaker 1: one billion in revenue, a huge amount of money in revenue,
Speaker 1: but the profit margin was down to four percent, so
Speaker 1: it was less than a third of what had been
Speaker 1: a few years earlier. So they were making more in sales,
Speaker 1: but they were capturing less an actual profit. The company
Speaker 1: was over extended and time was running out to pay
Speaker 1: the bills. In addition, more news came out about Gibson
Speaker 1: employees who felt that Jessica Witz's managed management style was
Speaker 1: intrusive and confrontational. He was often accused of being a
Speaker 1: micro manager, that he was getting involved in way too
Speaker 1: much stuff. If you go to glass door and you
Speaker 1: look up employee reviews for Gibson, you're gonna find numerous
Speaker 1: stories from people who felt the CEO was just involving
Speaker 1: himself too much in tasks that his executive management team
Speaker 1: and below should be handling, like hiring new employees or
Speaker 1: overseeing raises and things like that. Some even said that
Speaker 1: you couldn't even hire a janitor without taking it ultimately
Speaker 1: to the CEO for approval, which is definitely a little
Speaker 1: excessive for any really big company. Well, by May time
Speaker 1: had run out. By Mayen, that is, Gibson filed for
Speaker 1: Chapter eleven protection with the tend to divest itself of
Speaker 1: all those electronics companies that had picked up over the
Speaker 1: last few years and concentrate once again on producing musical instruments.
Speaker 1: So the goal now is to liquefy all the parts
Speaker 1: of the business that are not related to producing musical instruments,
Speaker 1: pay off as much of the dead as it can,
Speaker 1: refinance the new streamline company, and try to focus on
Speaker 1: what the company had been founded on in the first place.
Speaker 1: In addition, there may be a move to oust the CEO,
Speaker 1: Henry jessica Witz, that's in the process now. I've seen
Speaker 1: a lot of articles suggesting that lenders want jessica Witz
Speaker 1: out and to have new leadership at the company, But
Speaker 1: as of the recording of this episode, he is still
Speaker 1: CEO of Gibson and owns about thirty six percent of
Speaker 1: the company. So we'll have to wait and see if
Speaker 1: Gibson's lenders demand his resignation as part of the refinancing deal.
Speaker 1: In fact, by the time this episode goes live, that
Speaker 1: may have already happened. A lot of people are also
Speaker 1: saying that Gibson's efforts to get into consumer electronics was
Speaker 1: just an enormous mist ache from the get go, which
Speaker 1: is probably true, but I'm not so sure that it
Speaker 1: was obvious back when the company started making those acquisitions
Speaker 1: because guitar sales were falling and they had to do something.
Speaker 1: Gibson had to figure out how to offset flagging guitar
Speaker 1: sales and stay in business. Again, they produced the higher
Speaker 1: end of guitar models, so if they had started cutting
Speaker 1: costs and cutting prices in order to boost sales, Gibson
Speaker 1: would have the danger of of making its brand become
Speaker 1: less important in music. They were kind of stuck. It's
Speaker 1: like it's like if you were a luxury car manufacturer
Speaker 1: and you suddenly realized that no one wanted luxury cars anymore.
Speaker 1: It would be really hard to move from that to
Speaker 1: making standard vehicles because your whole brand is based off
Speaker 1: of a different appearance. And again, it wasn't just Gibson
Speaker 1: that was facing this. A lot of different guitar companies
Speaker 1: were having the same issue. Musical taste have moved away
Speaker 1: from guitar driven music. That's decreased the demand for new instruments,
Speaker 1: and there's a big interest in vintage musical instruments as well,
Speaker 1: which also is not great for Gibson. So you've got
Speaker 1: people who are serious musicians who want Gibson guitars, but
Speaker 1: they don't want current Gibson guitars necessarily. They might want
Speaker 1: a nineteen fifty nine Gibson Less Paul, which means you
Speaker 1: have to go and find one, you have to go
Speaker 1: and buy a used one, and you're not buying a
Speaker 1: new instrument. So that doesn't help out companies like Gibson.
Speaker 1: And again that's not just Gibson. Fender also is seeing
Speaker 1: the same sort of stuff where people are fans of
Speaker 1: specific years of of specific models of guitars, and that's
Speaker 1: what they're going for and they're not interested in buying
Speaker 1: a new one. So unless you were able to produce
Speaker 1: brand new guitars using the exact same technologies as the
Speaker 1: original ones, and then sell them at a price that
Speaker 1: would be lower than what people are asking for for
Speaker 1: the vintage models, you might be kind of stuck. But
Speaker 1: then you'd also get accused of not innovating in the space.
Speaker 1: It's kind of a really tough position to be in. Now,
Speaker 1: that doesn't mean that Gibson is doomed. It may very
Speaker 1: well be that this is exactly what is needed to
Speaker 1: refocus the company, get it back on track, and to
Speaker 1: get back into the good graces of the music industry.
Speaker 1: But for now, that is Gibson's story. Maybe I'll tackle
Speaker 1: Fender in a future episode and we can rock out again.
Speaker 1: In the meantime, If you guys have any suggestions for
Speaker 1: topics I should cover in future episodes of tech Stuff,
Speaker 1: why don't you let me know about them. Write me
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