 BREAKING BUZZ
Shareholders File
Class Action Suit Against GC
(Port Washington, NY - July 11, 2007) Believing $63 per share is not enough, Guitar Center shareholders filed a class action lawsuit against the company on July 10. The goal of the suit is for shareholders to get a new and/or improved offer. GC announced on June 27 it would be acquired by Boston’s Bain Capital, LLC, a private equity firm, for $2.1 billion, including assumption of debt. GC shareholders are being represented by the law offices of Brian M. Felgoise, PC in Jenkintown, Pa.
MAP Pricing is OK
Says Supreme Court
(Port Washington, NY - July 6, 2007) In a decision that can be considered a huge victory for the MI involving the FTC, The U.S. Supreme Court voted 5 to 4 on June 28 to allow price fixing by manufacturers. The ruling in the case Leegin Creative Leather Products v. PSKS overturns the 1911 “Dr. Miles rule,” which had made it illegal. The Supreme Court referred to MAP pricing or what some call “price fixing,” as resale price maintenance. The ruling was delivered by Justice Anthony M. Kennedy, who said: “Resale price maintenance can interbrand competition by encouraging retail services that would not be provided even absent-free trading…Offering the retailer a guaranteed margin and threatening termination if it does not live up to expectations may be the most effective way to expand the manufacturer’s market share by inducing the retailer’s and allowing it to use it’s own expertise and experience in providing valuable services.”
The Supreme Court also said the Dr. Miles rule was outdated and since manufacturers compete with other brands, competition should not suffer.
The victory for Leegin concerned lawyers for the Consumer Union, who said the ruling can result in higher prices for many products. The four dissenting justices agreed with PSKS and the Consumer Union. One of the dissenters was Justice Stephen Breyer. “The only safe predictions to make about today’s decision are that it will likely raise the price of goods at retail and it will create considerable legal turbulence as lower courts seek to develop workable principles. I do not believe the majority has shown new or changed conditions sufficient to warrant overruling a decision of such long standing.”
For a complete background of Leegin Creative Leather Products v. PSKS, see the May issue of the Music & Sound Retailer.
It happened!
Guitar Center Officially Goes Private
(Port Washington, NY - June 27, 2007) The long-rumored Guitar Center news has happened. Bain Capital Partners LLC snapped up the retailer this morning for $2.1 billion, including debt, in a leveraged buyout transaction. Bain will pay GC shareholders $63 a share, a 26 percent premium over its June 26 closing price of $50.06.
"We believe this transaction delivers outstanding value for our stockholders, and is a strong validation of the company's accomplishments over the years as well as our future growth prospects," said Marty Albertson, chairman and CEO of Guitar Center. "Following a comprehensive review process, our board of directors concluded this transaction is in the best interests of our company and our stockholders and it has the full support of the management team. Bain Capital has a successful track record and significant investment experience in the retail industry and we look forward to partnering with them going forward. We are committed to maintaining our vendor relationships and ensuring our customers will continue to experience the same quality and selection of musical instrument products as well as the high level of service and professional advice through our stores and our websites."
"As the leading retailer of musical instruments in the U.S., Guitar Center enjoys great brand recognition among musicians nationwide, a loyal customer base, and a track record of significant growth," said Jordan Hitch, a Managing Director at Bain Capital. "We look forward to working with the Company's experienced and capable management team to continue to build the business."
The deal includes a payout of $1.9 billion in cash, with the rest being assumption of debt. The deal is expected to close in the fourth quarter. The Music & Sound Retailer reported a month ago that GC hired an advisor to help faciliate a sale. That advisor turned out to be Goldman Sachs. We originally mentioned the possibility of Guitar Center going private in a January story named "What's the Future of Guitar Center?"
Bain is known for several LBO transactions, including Toys 'R Us, Burlington Coat Factory, and Michael's.
MORE BREAKING BUZZ
FCC Rules Against Behringer
(Port Washington, NY - June 14, 2007) The Federal Communications Commission has imposed a $1 million fine against Behringer, concluding it “marketed 50 models of unauthorized radio frequency equipment, specifically digital audio music devices, in willful and repeated violation of Section 302 of the Communications Act of 1934, as amended, and Section 2.803 of the commission’s rules.”
The FCC stated on its Web site that Behringer “acknowledges” it “failed to comply with applicable rules governing testing, labeling, and the filing of Form 740 for certain of its products.”
Form 740 states that imported devices are subject to mandatory custom declaration filing requirements.
Behringer responded to the ruling by saying it pertains to products that were shipped between 2000 and 2005 and were not known to pose safety or RF emissions hazards at the time.
“For those products that had passed stringent European standards, we believed that they also complied with FCC verification requirements. Later we realized that our assumptions were too broad regarding the differences and similarities in testing standards and procedures under FCC and European requirements,” said Behringer’s Global Communications Director Ron Koliha.
Behringer CEO Michael Deeb assured that, “Testing and labeling oversights like the ones that happened prior to 2005 are behind us now.”
Koliha added that the company “Stopped shipping these products to the U.S. and other markets immediately after the February 2006 notice until we could have third-party laboratories re-verify our compliance” as a precaution. “However,” he said, “we erred on technical requirements involving proper labeling and we were inconsistent in our filing of certain forms, all of which led to FCC’s forfeiture order.”
One point of contention for Behringer, however, is the FCC’s allegations that the company took too long to comply with its notifications. “Behringer’s top management took that as a serious ‘wake-up call’ and set about to prevent mistakes like this from happening again,” said Kohila. “That’s one reason why all currently available models shipped to U.S. dealers after our response to the complaint in early 2006 fully comply with FCC regulations and are properly identified as such.”
Roman Guitars Closing
(Port Washington, NY - June 15, 2007) As a correction to yesterday’s news writeup, Ed Roman said his store did not go out of business. Instead, the Las Vegas-based Ed Roman Guitars, known as “The World’s Largest Guitar Store,” began closing out the store’s inventory on June 13. This comes six months after Roman sold the business to a company operating area car dealerships. Nine employees were let go in May, followed by 13 more on June 13. The layoffs came as a result of liquidating the assets. This statement is accurate, however Ed Roman was mistakenly attributed to making this comment. The Music & Sound Retailer regrets that error.
A car dealership will likely replace his store, due to the potential for more profits. However, the store is not expected to close until after Christmas, when a massive holiday sale will take place.
Ed Roman is in the process of buying my name back. He didn’t sign any non-compete clause, so he plans to downsize and reopen a store within 60 days, although it won’t be as large as his last one.
THE LATEST BUZZ
NAMM Chats Up Topics During Town Hall
What’s the industry’s biggest challenge? “Getting more people to play music,” said NAMM CEO Joe Lamond during a Town Hall event taking place on May 2 in Flushing, N.Y. Dealers from as far as Worcester, Mass., came to the Sheraton LaGuardia East hotel in Queens to get an update on happenings at NAMM and ask questions during the event, which was preceded by a breakfast and also included a lunch. Lamond offered several jokes to keep the audience interested throughout, including a jest about how one member of the audience had “arrived just in time for lunch to begin.” The retailers responded well to the information as well as the light-hearted comments. Feedback was constructive and never got heated.
Discussing the industry’s biggest challenge, Lamond said “there’s something inherent about making music,” and pointed to Gallop polls revealing more women now make music than men, and “82 percent of people who don’t make music want to.”
To better exemplify the last point, he recalled an old story about a Led Zeppelin concert when a promoter was unhappy about a sold-out show to see the band perform. “Yeah, but we need to get all of the people out there,” said the concert promoter. “We need to get all of the people off of the highway.”
Lamond used the “highway” analogy throughout and mentioned ways the industry is trying to bring people from the highway to play music. That includes the Vans Warped Tour, School Jam, Drum Corps International, the Fortune Battle of the Corporate Bands, Wanna Play? and the Boys & Girls Clubs. The latter will now have after-school music programs at 4,400 of its locations.
Lamond followed by opening up the discussion to the general audience, and asked how retailers can best promote these opt-in programs. Several retailers said sales reps would be a good choice to mention these programs to dealers; especially ones who enjoy personal one-on-one contact and don’t have enough time to read e-mail and snail mail about the topics.
Mary Minotti, co-owner of Minotti Music in North Haven, Conn., recommended NAMM consider creating state chapters where those and other topics could be discussed. “It’s often difficult for those of us on the east coast to attend NAMM,” she said. “This would be a great way to discuss what we’re doing in our area and share ideas.”
When the discussion shifted to making your business more profitable, Minotti offered several more ideas she does at her store. She and her husband not only operate a music store, but a coffee house as well, called the Cabana Café. The store also hosts open mic nights and songwriter events, which draw about 90 people into the store. Minotti Music holds family karaoke birthday parties, and even has open houses featuring electronic horse rides for kids outside.
Mary Luehrsen, director of public affairs and government relations at NAMM, spoke of NAMM’s efforts on Capitol Hill and the efforts of SupportMusic.com. She added you can send pre-written letters to your politicians about a variety of issues by visiting NAMM.org, clicking on the “Government Relations” link, and then clicking on “Action Alerts.”
Drummer Rocky Covington, best known as the twin brother of 2006 American Idol finalist Bucky Covington, now endorses Mapex drums. He’s pictured with Mapex A&R Manager Joe Hibbs and his new Orion Series drum set. |
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Steinway, MakeMusic Profits Improve
Steinway earned 17 cents per share during the first quarter of 2007. That compares to a 23 cent loss during the same period in 2006. Pianos were especially strong, with sales increasing to $10.8 million, or 26 percent compared to a year ago. Band instrument sales were the laggard. Band sales decreased 24 percent, or $12.6 million, compared to 2006. A strike at the company’s Elkhart, Ind., facility and losses due to dealer consolidations were attributed.
Software publisher MakeMusic announced on May 3 it lost $164,000, or 4 cents per share, for its 2007 fiscal first quarter. The figure, however, was much less than the same period in 2006, when it lost $309,000. MakeMusic also had a 6 percent revenue increase to $3,271,000, compared to $3,088,000 during the first three months in 2006. The revenue increase was attributed to SmartMusic subscription growth.
House Resolution Passes
The U.S. House of Representatives unanimously passed House Concurrent Resolution 121, which states that learning music in schools is important in developing key workplace skills. Among them, critical thinking, creative problem solving, effective communication, and team work. Also, the resolution said that learning music “keeps students engaged in school and makes them more likely to graduate; and helps students achieve in other academic subjects such as math, science, and reading.”
MI Awards Abound
The annual MIPA Awards were given out in 40 categories at this year’s Musikmesse. Among this years winners were Audix, which won Best Drum Microphone for its DP-7 mic kit; Paul Reed Smith, which won for Best Electric Guitar of the Year for its PRS Singlecut model—an award it has won six times; and JBL Professional, which won Best Portable PA Product for the VRX928LA portable line array.
Cliff Castle, VP of sales, Audix
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Elsewhere on the awards front, GCI Technologies won the Best Product Line award at the National Association of Mobile Entertainers National Conference in Atlanta. The winning product was the Cortex HDC-1000 digital music controller, which lets DJs cue and manipulate files from iPods, USB hard drives, CD-ROMs, and more.
Finally, Martin Guitars struck a chord with Reader’s Digest readers this year, as the magazine’s “Best of America” awards included a nod to C.F. Martin & Co. The issue covered a variety of topics, and according to Reader’s Digest Editor-in-Chief Jackie Leo, “captures how Americans get things done —working hard, dreaming big, and overcoming obstacles.” Martin earned the award for “Best Way to Strike a Chord.”
Hal Leonard Celebrates 60
Hal Leonard celebrated its 60th anniversary in early May. The Retailer caught up with company chairman and CEO Keith Mardak, who has been with the company for 37 years. “The real key is the people you work with. I’ve had the pleasure of working with very talented people. That helped the company grow in the right direction. We also became a service-oriented company. We have always made sure to treat dealers right and get them the goods they want quickly.”
Mardak added that accuracy has been another reason for its success. “J.W. Pepper was our largest customer for many years and it found our error ratio was basically none—an accuracy rate of 99.8 percent. It finally just decided that instead of calling it in, they just scanned the label and accepted that everything inside the box was there. That saved it a lot of time and money.”
Hal Leonard celebrated the anniversary with tours of its facilities before, and a party during, the RPMDA Convention taking place in its hometown of Milwaukee. For more about the convention, see our story on page 10.
RPMDA Hits a High Note
By Shawn Conaway
The Retail Print Music Dealers Association (RPMDA) set an attendance record during its convention taking place from May 3 to 5 in Milwaukee, Wisc. More than 100 retail customers were represented among the 64 exhibits, and 325 people from throughout the world attended, of which approximately 60 percent were dealers and 40 percent were publishers. Approximately 25 percent were first-time attendees.
Joe Lamond, NAMM’s CEO, delivered the keynote speech, which extolled the virtues of NAMM and the RPMDA, with an emphasis on how they have partnered to promote the music industry and music making.
While NAMM had a significant presence at the conference, the overarching purpose of the conference was to foster an environment suitable for the promotion of printed music. Vendors offering standard printed music, music lesson plans, and music books abounded. There was little deviation from booth after booth, likely pointing to the lucrative nature of the printed media. FreeHand Systems differentiated themselves from the vendor crowd with the $899 MusicPad Pro, a digital delivery system for sheet music. The Linux-based tablet displays 500 sheet music titles in PDF format, along with other media like MIDI, MP3 files, movies, or Solero-formatted music sheets that can both display notation and play the music simultaneously.
Whereas the vendor time was an opportunity for suppliers and buyers to mingle and interact, the breakout sessions were opportunities for the buyers—mainly music store owners—to network with their peers. Pete Gamber, owner and operator of Alta Loma Music in Rancho Cucamonga, Calif., gave a presentation on using in-store music lessons to increase profits by driving up store traffic and product sales. The session was an informal look at the music lesson business and print music business, with an open interactive format to help attendees develop new ideas to increase sales. Gamber stresses the sales gospel to his staff, asking every potential customer who comes into his store if they want to buy a music book or music lessons. Quickly learning that great profits were to be had on books and lessons, Gamber quickly grew a single struggling music store into two profitable stores. Presenters during the session noted that print music sales account for 10 to 33 percent of their store profits, while lessons accounts for as much as 60 percent of profits. Gamber offers approximately 2,000 music classes each year between his two stores.
The scale of the RPMDA conference made the conference seem like a small community or extended family. With 75 percent of the people returning from last year, almost everyone has developed personal connections. The less-than-subtle undercurrent was the strong community building and family ties that are developed while at the convention. Store owners who would otherwise be the enemy when competing in the same market were greeted as close friends in the halls. A 60th anniversary reception at the Hal Leonard Corporation Headquarters was one of the many examples of the events that fostered community building.
Gamber affirmed the small community cooperative aspect of the conference by saying store owners come to the conference to exchange ideas that can help them build sales. The store owners act as peers, whether they own an 800-sq.-ft. store or a chain of 15 stores. Gamber described the conference as “a pool of highly specialized resources” and a “community of sharing,” saying that “if we are not all paddling the boat in the same direction, we are going over Niagara Falls.”
Rockett Man
Poison drummer Rikki Rockett announced the creation of a new drum manufacturer called Rockett Drum Works. Based in southern California, the company specializes in wood and acrylic custom drum kits and snare drums. In an e-mail to the Retailer, Rockett said the products are custom-made only at this time, but he plans to release a signature edition soon to be sold in MI retail stores.
Rockett had been a partner in Chop Shop Custom Drum company, but severed ties with the company over “a difference in business philosophy,” and even took some Chop Shop employees with him to his new company. The first Rockett Drum Works kits are making their debut this month on Poison’s tour and various TV shows.
WEB ONLY BUZZ |
Gretsch Company Honored
The recipient of this year’s Georgia Family Business of the Year Award, given out by Cox Family Enterprise Center, was the Gretsch Company. Fred W. Gretsch, president of the Savannah, Ga.-based company, and his wife, CFO Dinah Gretsch, received the award—which is designated for family-run businesses at least 100 years old—at a reception at the Cobb Galleria Center in Atlanta.
“I believe that it is our passion for great music, commitment to family and dedication to producing quality instruments that have brought Gretsch continued success through four generations,” said Fred Gretsch. His 124-year-old company is one of only three percent of American family-owned businesses that survived to the fourth generation, according to a study conducted by American Management Services, Inc.
Shure Hearing Study Confirms Music-Hearing Correlation
A recent study funded as part of the Shure Listen Safe program was presented at the American Academy of Audiology annual meeting to show proof that musicians “suffer a higher incidence of hearing loss than the non-noise exposed population at large.” The study included a test group of 1,018 musicians who received an ear exam and hearing test, and answered a lifestyle/case history survey.
Key findings of the study included:
• When compared to the ISO hearing standards, the musicians' thresholds were consistently worse for all frequencies except 8,000 Hz. The largest difference between musicians' hearing thresholds and norms were at 2,000, 3,000, 4,000, and 6,000 Hz.
• 39.0% of musicians had at least one frequency over 1,500 Hz with hearing thresholds 15 dB apart or more. 60% reported occasional tinnitus.
• 77.1% had at least one sign of hearing damage and either minimal hearing loss, a noise notch, asymmetry in hearing thresholds between ears, and/or tinnitus. Interestingly, those who reported tinnitus were not any more likely to have hearing loss.
• Noise notches—hearing loss at one octave above and below any frequency above 1,500 Hz—were found in all age groups but became more pronounced with age.
The factors that most affected hearing loss were age, years of experience, hours of exposure, and the use of some type of hearing protection. However, the type of music, family history, hours since exposure, and use of substances like tobacco and aspirin were not found to have a great impact on hearing.
Yamaha Music & Wellness Institute
Announces Research Partnership
Yamaha Corporation of America’s newly-created Yamaha Music & Wellness Institute (YMWI) announced a collaboration with the Windber Research Institute (WRI), a genomics and proteomics research facility funded by the U.S. Department of Defense. The reason behind this partnership—which Yamaha Corporation of America executive vice president Terry Lewis said “is certain to foster the development of scientific breakthroughs that will forever change our understanding of how playing a musical instrument impacts our health”—is to enhance quality of life through active music participation, according to Yamaha
“On a personal level, considering my own roots in music, I’ve always been convinced that playing a musical instrument has a phenomenal effect on one’s overall well-being,” said F. Nicholas Jacobs, president of WRI. “WRI welcomes the opportunity to work with Dr. Bittman and the newly-formed Yamaha Institute to scientifically test the impact of music making in individuals facing a host of serious healthcare challenges.”
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