Gibson Brands CEO Henry Juszkiewicz has been very busy lately as he scrambles to arrange a $550 million bailout package in a desperate attempt to avoid bankruptcy for the storied brand. But he’s about to get a little busier as one of Gibson Guitar’s vendors, Tronical of Hamburg, Germany, sues the company for $50 million it says it is owed.
So now Tronical gets in line behind Gibson bondholders seeking payment…
Tronical is the inventor and licensor of a technology that offers guitar players a system to automatically keep their guitars in tune. Trust me, as a former professional musician, I can attest to the constant tuning that our guitar players needed to make between songs as new strings stretch out during play or environmental conditions in the club change throughout the night of the gig.
Tronical’s system attaches to the head of a guitar and using servo-drive technology, can keep each string in tune. The company says its award-winning technology gets new guitar players up and running much quicker, and helps old pros stay in tune with less fuss and muss. It also says that Gibson licensed the technology for a line of guitars introduced in 2015, using the feature they call G-Force.
Not a Good Year for Gibson
Unfortunately, that line in 2015 was not successful for Gibson. Guitar players, it seems, didn’t see the tuning problem as a big enough deal that they were willing to pay even more for Gibson guitars that many felt were already over-priced. One guitarist told us that existing digital tuners make tuning a guitar simple and fast, and they are very inexpensive – most guitar players already own one. And they are quite a bit less expensive than Gibson expected for a G-Force equipped guitar.
One poster on Gibson’s website, posting under the name “Tim” said, “It’s called G-Force because Gibson forced it on the people.”
Gibson had been so excited about G-Force that most of its 2015 line-up included the feature. When many guitar players rejected it, Gibson ultimately was forced to retool most of their entire line-up and took a big hit to revenues and profit for the year.
Unpaid License Fees and Un-reimbursed R&D Expenses
Tronical does not give many details in their release, but evidently Gibson has not paid them for this unfortunate foray into an electronically tuned guitar for all. Digital Music News reported that Tronical has alleged that Gibson is not honoring “a long-term contractual agreement,” thus forcing this litigation.The $50 million claim is for unpaid license fees and Research & Development costs, the report said.
We have done substantial reporting on Gibson Brands’ many problems, mostly self-inflicted wounds incurred when CEO Juszkiewicz decided to diversify the business of Gibson Guitar – which at that time in 2012 was exclusively reliant upon the struggling musical instrument business. Juszkiewicz felt the company could make a go in what he thought was a related business, consumer electronics.
A Great Degree of Bravado
With a great degree of bravado, mostly reinforced by his ignorance of the problems in the consumer electronics business, Juszkiewicz plunged headfirst in an almost dizzying buying spree acquiring brands left and right. His greatest mistake was using OPM (other people’s money) to make these acquisitions, and in the process piled up massive amounts of debt.
Now Gibson Brands is just months away from the date of retirement on $520 million worth of that debt. The company does not have the assets to cover that, even though they have frantically sold off properties, including their storied Memphis factory and showroom. So Gibson is left with no choice but to try and refinance their debt.
That’s It, Bondholders Have Had Enough
The problem is bondholders have had enough. The company has been losing money for years and Juszkiewicz and crew have lost the confidence of the investment community – which is now demanding a solution that brings in new management. In the grand scheme of things, this litigation by Tronical is little more than getting their claim in just before what many assume is an forthcoming bankruptcy filing by Gibson. But it is surely not welcome news…on top of all else.
As one guitar player told us, “If only they had asked guitar players about G-Force before they committed, we could have told them not to bother.”
Yet another miscalculation by Juszkiewicz and crew.
Learn more about Tronical (including a cool video showing how their system works) by visiting: www.tronicaltune.com.
See all that Gibson has to offer by seeing: www.gibson.com.