Why did Gibson Declare Bankruptcy?

his name. I say kind of sort of because he was a luthier, someone who makes mandolins and guitars, and sought out the help of some businessmen in Calamazoo, Michigan, after he started getting more requests for his work than he was able to provide for it was it was great, his work was in demand, but he wanted to to expand, so he got together with a group of businessmen who all made a business that they called a the Gibson Company,

um specifically the Gibson Mandolin Guitar Manufacturing Company, and Orville was not a partner in that company. Instead, he sold a patent to the group and he got a kind of a pension from them, but other than that he was not heavily involved in the business. After a couple of years. I also talked about acoustic guitars and how they work. I talked about electric guitar pickups and how they work, as well as the evolution of Gibson in its first six decades are so arguably seven decades depending

upon how you're counting. Now today we're going to look at how Gibson has changed hands over the years leading up to the company declaring bankruptcy in two thousand eighteen. So what happened and is Gibson alone in this or are other major guitar brands also facing financial difficulty? Well, first, we have to backtrack just a bit. So in the last episode I ended by talking about what was going on in Gibson in the nineteen sixties. But earlier, back

in nineteen Gibson's ownership changed hands. A company called Chicago Musical Instruments or c m I acquired Gibson, and the founder of c m I was a guy named M. H. Berlin. Berlin was born in eighteen ninety five in Romania, and his family immigrated to the United States in the early nineteen hundreds. They moved to Chicago. Berlin attended school through the eighth grade and then left school to work at Wurlitzer's,

a retail store in Chicago. After serving in the U. S. Navy during World War One, Berlin would return to the United States and, after working for a musical instruments company as a salesman, would eventually be the founder of CMI in nineteen twenty. In nineteen forty four, only one of the original five Kalamazoo businessmen who founded Gibson was still alive. That was John Adams, not the president, and he was eighty five years old. He decided he wanted to sell Gibson.

C m I had own into a successful musical instruments distributor company, and Berlin's company bought out Gibson. For the next two decades, Gibson performed well in the market and introduced numerous innovations in their products. In nine, an odd merger happened. C m I, the parent company for Gibson, would merge with a company called E C L. Well. What was e C L It was a brewery and concrete company in Ecuador? What the what? Well? It was

a company that was founded in Ecuador. Uh was had several different interests there, including concrete and cement as well as a brewery, So the board of e c L were really the owner of e c L. Purchased publicly available stock in c m I enough of it to assume control of the company. This is technically what we would typically call a hostile takeover, the idea that you're going through shares of stock rather than talking with leadership about a transition from one style of company to another.

The chairman of v c L was a guy named Norton Stevens, and the new merged company was called Now Orleans. And Now Orland came from combining the first three letters of Norton Stephen's first name with the last three letters of MH. Berlin's last name, No Orlan. No Orlean had three main businesses. One was brewing, one was musical instruments,

and the third was somewhat vaguely defined as technology. There are some accounts from Gibson employees dating around this period that suggests their new peers, their new business owners, were more focused on maximizing profits than on building high quality instruments for musicians. And it wasn't that they wanted to make substandard products, but rather they just didn't have an understanding of what it takes to make a good music instrument.

They weren't Louthier's, they weren't even musicians necessarily, and according to Stan Rendell, who was serving as the president of Gibson at the time, the new way of doing business ended up hurting Gibson and included a fundamental change in the way the company approached products. Before the acquisition, Gibson had a single customer that was c m I. Gibson didn't sell directly to people. Gibson sold their products to their parent company, c m I, which was a distributor.

So here's how it would work. Gibson would manufacture musical instruments and then essentially would sell them to c m I at a profit. So whatever it cost Gibson to make the musical instrument, they would mark that up a bit so they can see see a profit sell that to c m I. C m I would distribute those musical instruments at a marked up price to make their profit. So each stage, the price of the guitar or whatever it may be, it was a mandolin or avenge or

whatever would go up. So from Gibson to c m I, price goes up. From c m I to say a retail store somewhere the price goes up, and the price goes up a little bit more to the end customer, the musician. So that explains partially why these guitar prices would get pretty high eventually, because you're talking about several different middlemen that have to get their cut before it ever gets to the customer. If Gibson were selling directly to the customer, the prices might be a little lower,

not necessarily significantly lower. Because Gibson was always in the business of making high end guitars. Their guitars were known as UH some of the flagships in especially in electric guitars. It was essentially Gibson and Fender were the two big names, and so they could charge a premium because they were selling the premium products. Everyone else was kind of selling either slightly lower cost, lower quality ones or knockoffs, and

that was about it. Well, the Gibson would take the profit that they made by selling to c m I and they would use that money to fund research and development. They would give raises to people who were innovating a musical instrument design, they would improve manufacturing processes. Essentially, they would reinvest their profit back into the business, back into the people in the business, and it was a good way to create an incentive to do good work. However,

upon normilists becoming the new reality, things would change. Nor Leists operated Gibson as a cost center, meaning normilists would just pay the bills as Gibson incurred them. So instead of Gibson trying to balance everything by taking the revenue it got from c m I and then paying off whatever bills it had and investing in the business wherever it needed to, nor Less would just say, oh, well,

if you incur age expense, we'll pay it. There was no profit model for Gibson to pursue anymore, and according to Randell, this removed any incentive to innovate and work hard. He said, if your bills are being paid, whether you work hard or not, your inclined not to work very hard. So that was kind of an interesting point. Now, I will say that that doesn't necessarily hold true in all venues where if your bills are paid, you aren't inclined

to work hard. But that but if it's if it's a thing where uh you know, in this particular arrangement that Gibson had with new or Less, essentially that does seem to be one of the reasons why quality started to slip, but the company did soldier on. It produced a few instruments in that era that we're not praised very much, possibly due to the new focus on the streamline manufacturing process to maximize output. Some employees later expressed opinions that this was at the cost of build quality.

Others would say, no, we made good guitars, they just they just weren't the best, most innovative designs. But things really took a downhill turn in the eyes of guitar lovers in the mid to late seventies. That's when Gibson began producing guitars that got what we'll call a mixed reception. That's being kind. There are certainly some fans of Gibson's guitars from this era, but there are a lot of outspoken critics as well. In fact, I say that the

critics far outnumber the fans. So let's take the Marauder as an example. Gibson introduced this line in nineteen seventy four and went into mass production the following year. It was a departure for Gibson designs as it featured a bolton neck Gibson guitars up to that point had been set in neck joint guitars being the next would slot into the body of the guitar and then would be

secured by glue. So if you remember in the first episode I talked about the anatomy of a guitar, you have the body, that's the part that has the sound hole in it. For an acoustic guitar. You have the neck that's the part that joins onto the body, and it's the part that the strings are are strung against and have frets where you can press the string against the frets to make different notes. And then you have

the head of the guitar. That's where these strings attached to the tuning bags and you can tune the strings. So where the neck and body would meet, you could do what is called a set in neck joint, where it has sort of the seamless look to it, where the neck of the guitar sets into the body of the guitar. But the Marauder was different. It was a

bolt on, which is what it sounds like. Once you fit the neck to the guitar body, you secure the neck to the body with screws or bolts, so Fender guitars were frequently bolt on neck guitars and Gibson had usually opted for set in neck guitars, so the Marauder was a new direction. Some people said, oh, they're kind of copying Fender, and some guitars said that it actually sounded more like a Fender guitar than a Gibson guitar, which was due to the difference in the pickup that

they used. So if you remember in my last episode I talked about what a pickup is. I'll talk a little bit more about it again in a second, but Gibson pickups have sort of a more mellow sound to them typically than Fender ones do. Fenders have a little more not not twangy, but there's a little more of a metallic sound to Fender pickups. And it's not that

one is better than the other necessarily. They give off different qualities of sounds, So it all depends upon what kind of sound you want to go for, what is the tone that you're looking for, and that would help determine which pickup you would most want to go with. It's not necessarily that the Gibson model was superior Defender. It was just different. But the marauder was also a

bit of a Frankenstein's monster. The marauder had the body of a Less Paul edition Gibson guitar, so it was shaped in the same way as a less Paul Gibson, but the head at the end of the neck was not from a Less Paul Asian guitar. It was from a Flying V guitar, so it was a different style head than what you would normally see with that style of body. And the guitar had a pair of humbucker pickups. Now, I mentioned the humbucker in the last episode, but I did not go into much detail. So let me give

you a quick rundown. Now, as I said in the last episode, electric guitars have at least one coil of conductive wire, typically wrapped around a permanent magnet, and the strings on electric guitar are ferromagnetic, and the area above the picnic pickup gets magnetized just through proximity. So because those strings are close to a permanent magnet, they get a little They're magnetized to a small degree, and as those strings vibrate, they create a fluctuating magnetic field over

the coil of conductive wire. That's inside the pickup. This induces a change in voltage and thus current to flow through this coil of conductive wire. That current can be sent out to an amplifier and then two speakers to produce sounds. You can also do lots of effects on the signals and create all sorts of different things like distortion and stuff. But what does that have to do with a humbucker. Well, I'll tell you in just a second, but first let's take a quick break to thank our sponsor.

A humbucker is a type of a double coil pickup in which you have one coils magnets with their north poles pointing up towards the strings, and the other coils magnets have their south poles facing up towards the strings. So that's where we get the double coils. Now, you can have multiple magnets within the coils, but you only have two coils, but the two coils connect together out

of phase. So why would you do this? Why would you have one set one coils magnets with the north pole facing up one coils magnets with the south pole facing up, and why the heck connect them out of phase? Well, as it turns out, can act of coils aren't just good at picking up magnetic fluctuations. They are good at that, but they're good at other things too, Like they're good at being antenna in general, and they can pick up all sorts of stuff which can produce a hum in

an outgoing signal from the guitar. So you could have a guitar plugged into an amplifier and you can hear a hum from the guitar even though you're not doing anything with the guitar. There's that sort of distortion that's coming in this little signal, and it can interfere with the sounds you want to create with your guitar, because once you amplify a signal, that hum becomes audible, and chances are it's not what you want people to hear. The humbucker, as the name implies, bucks the hum by

putting those two connected coils out of phase. Now allow me to explain. By connecting the coils out of phase, the two coils can eliminate incoming distortion signals. Now, this is sort of how noise canceling headphones work. Visualize a sound wave with peaks and val so the way we typically think of sound waves where we've plotted against an x y axis, and we've got those nice smooth curves

that represent the amplitude of the uh. The height represents the amplitude of the sound wave, and the length of that represents sort of the well the wavelength and then ultimately the frequency if you have any sort of designation of time on there. So visualize the sound wave with peaks and valleys. That's a really steady tone, so it's nice. And even now imagine you have a second wave identical to the first. It's got the exact same wavelength, that's

got the exact same amplitude. But now imagine you offset it so that if you overlay the second wavelength or second wave on top of the first wave, the peaks of one match with the valleys of the other, and vice versa. So where wave one is at its highest most point, wave two is as lowest most point, and vice versa. These two waves cancel each other out. The dips of one wave match the peaks of the other wave,

and you end up with a straight line. Mathematically speaking, and in fact, as far as actual sound is concerned, they cancel each other out. You you wouldn't hear anything, so any incoming distortion signal would be picked up by both coils. And you have one that's with these magnets facing north and one that's with the magnets facing south, and the two coils are connected out of phase. So once the connections come in, you get these the noise

canceled out. So why doesn't the humbucker do the same thing to the signals it picks up from the strings. It's canceling out noise. Why doesn't can't Why doesn't it cancel out the actual playing? Well, this has to do with that old Star Trek trick of reversing the polarity. So for the purposes of just eliminating distortion, the north south designation of the magnets doesn't matter so much. That's not really what's important. What's important is the fact that

the two coils are out of phase. But in order to actually get sound from this electric guitar, that north south orientation matters a lot. So one coil has the north pole orientation towards the strings, one coil has the south pole orientation towards the strings. That means the direction of alternating voltage of one coil is opposite that of the other. Coil, but you've connected the two coils out of phase, so this effectively flips one signal so that

now you have an additive output rather than a canceled one. So, in other words, all those peaks and valleys I was talking about before they line up as opposed to offsetting each other, they they are set up so that they are directly lined up with one another because of that out of phase connection. That's what flips that last switch to make sure that they're lined up properly. This dramatically improves your signal to noise ratio. You reduce hum and

you hear the signal much more clearly. So the humbucker was a really clever UH innovation, and it wasn't necessarily it wasn't just developed at Gibson. It's that Gibson really um adopted the humbucker as their approach to pickups, as opposed to something like the Fender Stratocaster line, which used a single coil pickup. The position of the humbucker on the body of the guitar also matters. Many guitars will actually have multiple pickups. They'll have them positioned at different

points along the body of the guitar. Underneath the strings. Typically you might find one with two pickups. One would be positioned closer to the neck and one closer to the bridge, And those guitars typically have a switch or a knob that allows you to go from one or the other, or even blend the two together, and you get a different quality of sound that way. So if you switch it to the neck, you're gonna be able to tell the difference than if it were at the

bridge before. And of course there's some that even three pickups where you've got one in between those other two, and you can get all sorts of different combinations, and it all ends up affecting the tone of the of the sounds you're making. You're still creating the same notes, the frequencies you create remain the same, but the actual tone the feel of the sound changes, and it's very

hard to put it into words. It's much easier if you go and find videos where people are showing the difference between the different pickups, then you can really perceive it much more easily. It's a lot harder to just put into words. Anyway. Back to Gibson's guitars, the marauder was what we were talking about a second Ago. But in addition to the Marauder, Gibson released guitars like the Gibson S One, which had a single coil pickup made

it sound more like a Fender Um. Then you also had the Gibson Corvus, which is a hard one to describe physically. The body of the Corvus was meant to look like a bird. Corvus actually means crow in Latin, but a lot of musicians had trouble visualizing the crow from the guitar design because it's somewhat abstract, So instead they referred to this guitar as Gibson's can opener because I had kind of a hook look to it, which made it look like an old fashioned manual can opener.

You need to look at a picture of one of those to kind of get an idea of why they called it this thing. Again, this isn't to say these instruments didn't have fans. There are some people who love these guitars, but the general consensus was that Gibson was losing its way, and Gibson was not unique in this position. In the nineties sixties, electric guitars were incredibly popular. The music of the time was very heavily skewed towards electric guitars.

You had a lot of different genres that were UH that were becoming very popular and some that were emerging. So you had rhythm and blues, you had UH, you had the early rock and roll guitars, you had surf rock. You had all these sort of genres coming up and and electric guitars took front and center and most of those genres. So it became an attractive asset for larger

companies that were looking to diversify their holdings. They were saying, hey, you know, the electric car electric guitar craze is crazy, Let's let's invest in that. And so with Gibson, you had this brewery in Ecuador that swooped in to purchase CMI. Leo Fender of Fender Fames sold his companies to the

Columbia Broadcasting System better known as CBS in nineteen sixty. Epiphone, which was another musical instruments company, was purchased by Chicago Musical Musical Instrument Company in nineteen fifty seven c m

I that was the parent company of Gibson. UH. So CMI buys Gibson N four, they buy Epiphone in nineteen fifty seven, and originally the two businesses were kind of kept separate from each other under the ownership of c m I, but Epiphone would gradually end up building more and more um musical instruments that were based off Gibson designs, but at a lower cost point, using lower quality stuff maybe or maybe not as precious materials. Maybe that's a

better way of putting it. They were frequently considered a sub brand of Gibson and sort of looked at as the entry level for guitars that followed the Gibson style, so that maybe you would want to go and get an epiphone before you went and got to Gibson, because Gibson's really expensive and epiphones were less so. But there are plenty of electric guitar experts who feel that this era led to some really bad decisions among major electric

guitar companies, not just Gibson. They point to cost cutting measures that were meant to bring down the manufacturing expense for guitars, to make them easier to produce in larger numbers, and to make them less breakable. Uh really, they were saying, why what can we do to make these cheaper? To produce, make it easier to produce a lot of them, and to try and reduce the number of customers who bring back these instruments that are under warranty and then we

have to replace something. And the way you do that typically is that you start cutting back on features. You start simplifying the guitars so that there are fewer things to break, and it's faster and easier to make them. And you might take some liberties when you're making your designs,

things that a luthier would not have considered. The most frequent way I saw it referenced during my research was that the design of instruments was taken away from luthiers and musicians and handed over to accountants and beam counters. For Gibson. This era stretched into the early nineteen eighties, when two companies called Rooney Pace Group and Piezo Electric Products moved to make a hostile takeover of New Orland.

Rooney Pace Group was a brokerage and private investment firm with a specialty for helping companies preparing to hold an initial pub like offering or i p O. That's when a private company turns into a publicly traded company. Piezo Electric Products was a growing company that just held its own I p O and was looking for an acquisition target. And so they joined forces and started looking around, and they settled on now Orland. Now, the management in no

Orland was not keen on this idea. They attempted to fight it off. They tried to get an injunction with the courts, but the courts denied them this and ultimately no Orland would lose this fight and ceded to the

two partners on August nine. Norton Stevens, who had been the head of no Orland, was bumped down to vice president and the founder of Rooney Pace, which was a guy named Randolph K. Pace, became the new chairman of the company, and one of the first things that he said he wanted to do was sell Gibson from the company's holdings, which they eventually did in January nine six. There was actually danger of Gibson just going away if

no one stepped to buy them. Before I continue on with Gibson, a few more words about Pace and this hostile takeover business. Now, in the nineteen eighties, there were a string of hostile takeovers, which at the time were generally considered a legit strategy, but the takeover of No Orlan would later be viewed as damaging, expensive, and indicative

of a complete lack of competence. Hostile takeover fiasco's would lead to the development of new strategies to prevent such things from happening so readily in the future, such as poison pills. Now I talked about poison pills in an earlier episode of Tech Stuff. It's just a measure that companies will take in order to discourage hostile takeover attempts.

At Pace himself would later plead guilty to charges that he had secretly manipulated a brokerage firm called Sterling Foster that had been involved in securities fraud shenanigans, and uh and to the tune of like two million dollars At that point. Pace was sentenced to pay more than a hundred thirty million in restitution to investors and he got sent of eight years four months in prison. So things did not end well for Mr. Pace. As for Gibson,

big changes continued to happen at that company. Around that time, Gibson shut down its historic Kalamazoo, Michigan manufacturing facility, the home of Gibson shifted from Kalamazoo to Nashville, Tennessee. It had a second manufacturing facility there, and that became the new headquarters for Gibson. The new owners of the company where David Berryman, Gary A. Zabrowski, and Henry Jessica Witz. More on them in just a second, but first let's

take another quick break to thank our sponsor. Gibson's new owners bought the company for the princely sum of five million dollars. Consider for a moment that some Gibson guitars have been auctioned off for near a million dollars each. Now, granted, those are guitars that were played by famous musicians like Eric Clapton, but still it's tough to think of a company that sold premium guitars for thousands of dollars of

guitar selling for five million dollars itself. In addition to Gibson, the three new business owners would lead the way to acquire the Flat Iron Mandolin Company out of Bozeman, Montana in nineteen seven and turn it into a new manufacturing plant for Gibson acoustic guitars and other instruments. In nineteen eight nine, things were looking up. The Gibson name was returning to a revered spot in the world of music.

People were starting to forgive the the era of the mid seventies to early eighties, where the guitars were viewed as being of lower quality. They were starting to say, well, things look like they're back on track now, and the company continued to grow through acquisitions. Gibson would buy companies like Steinberger and Tobias Basses, Cramer Guitars, Slingerland Drums, O m I, and Baldwin Pianos over the next several years.

In nine, the company celebrated one years since Orville Gibson started selling his guitars, and they introduced a new model called the Nighthawk, which would later win the Most Innovative Guitar Award at the National Association of Music Merchants trade show. The night Hawk had elements that made it again kind of sound a little bit like a Fender, and then other elements that made sound more like a Gibson. But despite all these accolades, it was never really a top

selling guitar. It was discontinued by nine. Gibson would reintroduce

the line a couple of times since then. They would have a little limited edition run of Nighthawk guitars, but some of them were only superficially similar to the nine model, Like some of them just looked like the old Nighthawk guitar but did not have the same sort of pickups that the original run of Nighthawks did, So they were really just Nighthawks in name and shape, but not in performance, which makes things really confusing when you start talking about guitars.

It also means that if you are shopping for a guitar, this is just a good note for anybody. And this this extends beyond Gibson. If you're shopping for a guitar and you've heard about a particular model of guitar that you really like, because maybe there's a musician you admire and he or she plays that guitar, find out what

year that guitar was made. Because different times throughout the history of these manufacturers, uh, they have used different types of technology in reissues of guitars, and it may turn out that if you go out and buy a new version of that same model, that it will not sound anything like the one that you are familiar with. For me, it wouldn't sound anything like anything, because I am not

a musician and it would just be awful. But for my musician and friends out there, narrow it down not just to the the model and manufacturer, but the year of the guitar. Well. In the early two thousand's, Gibson introduced a new protocol called Media Accelerated Global Information Carrier or MAGIC, which is pretty cute. The company featured the protocol on a new product called the Gibson Digital Guitar, which they introduced in the late part of the first

decade of two thousand. Boy, that's a really where are you wait to say? Two thousand six two thousand seven? Anyway, this guitar had your standard quarter inch jack that you could plug into an amplifier, but it also had an Ethernet port and you could plug in a CAP five cable into the either net part and then plug the other end into a PC and send signals straight to

the PC. The digital guitar even has the ability to capture information from each string individually, which meant you could apply effects to specific strings and you can leave that effect off other strings. So you could add an effect on say the eastering, and leave it off of all the others. If you wanted to um, I think that's an interesting idea, and it was. It showed that Gibson was really trying to push for the next era in electric guitars, especially with this eye on how electric music

electronic music was really, uh, the new thing. Digital music was big and so and still is big, but was getting big at this point, so the company was trying to get out in front of that. It did not necessarily receive a whole lot of enthusiasm from professional musicians, but there were a lot of technologies who thought it was pretty darn cool. I remember seeing it for the

first time and thinking, wow, that's kind of interesting. I've never really considered having a Ethernet port on an electric guitar before Gibson started to encounter a problem that was affecting a lot of guitar companies. This was the demand for guitars. It was on the decline. It wasn't just

for Gibson, it was for everybody now. Gibson, of course, again being a premium guitar man you facturer, meant that they were feeling it pretty hard, because you know, they're they're they They really relied on selling fewer guitars at a higher price, and when you're your number of orders decreases, you're gonna feel it pretty pretty heavily. More and more music was entering the digital age. More and more music was being created without any actual musical instruments being involved.

You could create stuff by computer, and so uh. Guitar companies in general were facing really big problems. But in two thousand seven, Gibson would purchase Garrison Guitars, Still moving forward. Garrison was an acoustic guitar company based out of Canada, and Gibson would then introduce a technology called the Meny Tune and two thousand and eight it became something of a joke among musicians. The device consisted of a tuner, as in a little device that has a microphone in it,

and it detects the frequency of a strum string. So there are lots of different kinds of tuners out there. I've used tuners before. I did say I'm not a musician, but I do play ukulele on occasion, and I have a ukulele tuner. So what happens is you play a string and the tuner detects what the frequency of the

strummed string is. It compares it to what it should be, and so it starts to tell you whether you need to tune the string so that you add more tension to it and increase the pitch, or decrease the tension and decrease the pitch of the played note until you hit the exact frequency you are looking for. So if

the strings frequency matches up, everything's good to go. But if not, well, the mini tune would trigger a mechanism to turn the tuning pegs of the missed tuned or miss tuned strings to get them to tune up properly. So you get this little robotic as the little tuning pegs would turn and it would put on more and more tension or less tension in order to get the

the strings tuned exactly to the right note. Some musicians complained then, not only was this an unnecessary gimmick, but that it also would add several hundred dollars to the price tag of a guitar. So, in other words, they were saying that Gibson was trying to create a license to print money. They were including features no one really needed as an excuse to charge more for their guitars, And essentially the argument boils down to this Tuning a guitar is easy. You just need the tuner. You play

a string, you look at the tuner. It tells you if you're too higher too low. You adjust the string, You play it again, and you do this a few times until you've tuned into the right frequency. And it might mean that you have to do it three or four times. Maybe if you have a really good ear, you don't need to do it that frequently, or you know that frequently need to get to the right the right a note. But it doesn't really take up that

much time. And so the convenience of the mini tune was questionable according to these musicians, that why would you pay an extra three four hundred dollars on a guitar for something that you could easily do yourself for a third or a quarter of that price with a good tuner and just a little patience. In two thousand nine, Gibson faced some legal trouble. The company's manufacturing facilities were the center of a raid led by the United States

Fish and Wildlife Services. Which might sound really weird to you. What was Gibson somehow using guitars to torture fish and wildlife? Well, no, it turned out that Gibson had purchased ebony wood from Madagascar and the would was illegally imported that would be a violation of a US law called the Lacey Act. Two years later, Gibson was rated a second time when the company imported would from India that the US government said had been labeled incorrectly when it went through US customs.

Gibson's CEO, Henry jessica Witz, claimed that the government was unfairly targeting Gibson, going so far as to suggest it was due to his own alignment with the Tea Party, and then the whole thing was politically motivated and got into a big argument about property rights. The government maintained its argument that the goods were brought into the country illegally was the real reason that they targeted Gibson, and that Gibson eventually would be compelled to settle out of court.

Though jessica Witz continued to protest the whole thing and got all have support from certain people in the Tea Party movement, others said no, if you break the rules, then you pay the consequences, and if you think the rules are unfair, then you lobby to have the rules changed. But you can't just be complained that you're being You know you're being held up when you are caught breaking the rules. In an effort to diversify beyond music instruments,

Gibson acquired a company called the Stanton Group. By this stage, Jessica Witz was envisioning Gibson transitioning into a lifestyle brand, not just a musical instrument brand, so that would include audio equipment like monitors, loudspeakers, headphones, turntables. Gibson launched a new department called Gibson Pro Audio. Gibson would build this out further with a partnership with Kio Corporation, in which

made home theater systems. So this was really Gibson saying, let's look into the consumer electronics market and try to make a spot for us there because the guitar business has been slowing down so much. In two thousand thirteen and two thousand fourteen, the company continued to push for

a diversified portfolio and an increased presence in consumer electronics. First, Gibson purchased a majority stake in a Japanese electronic company called Teak Corporations U T E T e a C. Then it acquired the consumer electronics division of another company called Royal Phillips, and while making those moves, Gibson was spending a lot of money and taking out high interest loans, and that, paired with flagging guitar sales, would spell trouble

for the venerable company. By two thousand eighteen, the question appeared not to be if Gibson would declare bankruptcy, but when the company's acquisitions led to a great deal of debt, that would be do. In July two eighteen, according to The New York Times, Gibson as a company brought in more than one point to billion dollars in revenue annually, but had more than five hundred million dollars in debts, and then that was going to increase if the company

was unable to pay those debts. By July, the company's lenders were really getting concerned, and that concern was largely due to the fact that Gibson's earnings, the stuff that's actually around once you take the costs out of your revenue, had been dropping steadily. In Gibson had three hundred million dollars in revenue, so a fraction of that one point to billion we were just talking about but they had a twelve point nine percent earnings before taxes and interest margins,

so the profit margin was twelve point nine percent. In two thousand and fifteen, Gibson had an astonishing two point one billion in revenue, a huge amount of money in revenue, but the profit margin was down to four percent, so it was less than a third of what had been a few years earlier. So they were making more in sales, but they were capturing less an actual profit. The company was over extended and time was running out to pay

the bills. In addition, more news came out about Gibson employees who felt that Jessica Witz's managed management style was intrusive and confrontational. He was often accused of being a micro manager, that he was getting involved in way too

much stuff. If you go to glass door and you look up employee reviews for Gibson, you're gonna find numerous stories from people who felt the CEO was just involving himself too much in tasks that his executive management team and below should be handling, like hiring new employees or overseeing raises and things like that. Some even said that you couldn't even hire a janitor without taking it ultimately to the CEO for approval, which is definitely a little

excessive for any really big company. Well, by May time had run out. By Mayen, that is, Gibson filed for Chapter eleven protection with the tend to divest itself of all those electronics companies that had picked up over the last few years and concentrate once again on producing musical instruments.

So the goal now is to liquefy all the parts of the business that are not related to producing musical instruments, pay off as much of the dead as it can, refinance the new streamline company, and try to focus on what the company had been founded on in the first place. In addition, there may be a move to oust the CEO,

Henry jessica Witz, that's in the process now. I've seen a lot of articles suggesting that lenders want jessica Witz out and to have new leadership at the company, But as of the recording of this episode, he is still CEO of Gibson and owns about thirty six percent of the company. So we'll have to wait and see if Gibson's lenders demand his resignation as part of the refinancing deal. In fact, by the time this episode goes live, that

may have already happened. A lot of people are also saying that Gibson's efforts to get into consumer electronics was just an enormous mist ache from the get go, which is probably true, but I'm not so sure that it was obvious back when the company started making those acquisitions because guitar sales were falling and they had to do something. Gibson had to figure out how to offset flagging guitar

sales and stay in business. Again, they produced the higher end of guitar models, so if they had started cutting costs and cutting prices in order to boost sales, Gibson would have the danger of of making its brand become less important in music. They were kind of stuck. It's like it's like if you were a luxury car manufacturer and you suddenly realized that no one wanted luxury cars anymore.

It would be really hard to move from that to making standard vehicles because your whole brand is based off of a different appearance. And again, it wasn't just Gibson that was facing this. A lot of different guitar companies were having the same issue. Musical taste have moved away from guitar driven music. That's decreased the demand for new instruments, and there's a big interest in vintage musical instruments as well,

which also is not great for Gibson. So you've got people who are serious musicians who want Gibson guitars, but they don't want current Gibson guitars necessarily. They might want a nineteen fifty nine Gibson Less Paul, which means you have to go and find one, you have to go and buy a used one, and you're not buying a new instrument. So that doesn't help out companies like Gibson.

And again that's not just Gibson. Fender also is seeing the same sort of stuff where people are fans of specific years of of specific models of guitars, and that's what they're going for and they're not interested in buying a new one. So unless you were able to produce brand new guitars using the exact same technologies as the original ones, and then sell them at a price that would be lower than what people are asking for for

the vintage models, you might be kind of stuck. But then you'd also get accused of not innovating in the space. It's kind of a really tough position to be in. Now, that doesn't mean that Gibson is doomed. It may very well be that this is exactly what is needed to refocus the company, get it back on track, and to get back into the good graces of the music industry. But for now, that is Gibson's story. Maybe I'll tackle Fender in a future episode and we can rock out again.

In the meantime, If you guys have any suggestions for topics I should cover in future episodes of tech Stuff, why don't you let me know about them. Write me an email the addresses tech Stuff at how stuff works dot com or draw me a line on Facebook or Twitter. They handle it both of those. Is tech Stuff hs W, follow us on Instagram, and remember you can watch me record shows live on twitch dot tv slash tech Stuff. Just go to that u r L you'll see the

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