All of us connected with the music industry have been watching the financial news of both Guitar Center and Gibson for quite a while now, and they deserve our close attention. That’s what comes with being a major player in the business and a giant piece of the American music scene. I don’t think it gives anyone any pleasure at seeing them struggle, yet here we are again.
The latest news about GC came last week as the company was downgraded to a ‘CCC—’ by the stock rating agency Standard & Poor’s, indicating serious risk of bankruptcy. Earlier in the month ratings agency Moody’s warned investors that it expected GC to default on its huge upcoming bond payment, but the company narrowly avoided that in a last minute renegotiation. According to the agency, “The rating outlook remains negative.”
This was not unexpected as it was discussed here several times during the last year that things were going to get financially tough for the company around this time when the bond payments came due. The company has some breathing room until April 2019 when the $615 million debt is due again, but expect more changes to come in the meantime.
Gibson also as its hands full of financial problems, as was noted here previously, but to add to its woes the company was just sued for $50 million by Tronical, the company that invented the robot-tuning technology that Gibson employs on several of its guitars. Granted, this was a failed venture in that guitar players rejected the feature hands-down, but Gibson apparently hasn’t paid Tronical the agreed licensing fees and additional R&D fees that were previously agreed to.
The big problem here was that Gibson just jumped into the pool with the auto-tuners, putting them on a wide-range of instruments, instead of just dangling a toe in the water first to test the temperature. The problem wasn’t so much the technology as was the fact that it made already expensive instruments even more expensive. Most guitar players today get by just fine with a $10 Snark tuner so the long-time hassle of tuning is that much of a big deal anymore.
It’s hard to watch these two iconic companies scuffle, but if nothing else, it makes for interesting news.
UPDATE: Gibson filed for bankruptcy today. It looks like some big changes are coming!