Plucking a profit

The annual Frankfurt Music Fair, which runs through March 27, is one of the most important events of its kind for the international music industry. Last year saw over 1,500 exhibitors and over 78,000 visitors. Musical instruments and accessories make up a major part of the fair and one of the most popular exhibitors is the Gibson guitar company, makers of the iconic Les Paul electric guitar.

Gibson Guitar Chairman and CEO Henry Juszkiewicz sat down in Frankfurt for an exclusive interview with Deutsche Welle.

Deutsche Welle: How is the music business?

Henry Juszkiewicz: Well, I think it's good. The world faced a huge problem obviously last year - economically. I think consumer markets were very affected worldwide by financial calamity and certainly the music business was affected like any other consumer market last year.

We have been growing in markets outside the United States but the industry as a whole fell substantially. Things are now starting to pick up - not only for the music business but for all industries. So 2010 is not quite back to normal but is fast approaching normal.

A lot of musical instruments, like pianos, are big-ticket items, but to a 14-year-old, a guitar has a different meaning…

It does in a number of ways. One is that a guitar is a very affordable purchase. You can get an exceptional guitar for $200. We have guitars that we actually sell for less than $100 through mass merchants. And that's on the order of a video game - except the video game you're going to play for five or six hours. The guitar will last you a lifetime.

Was Gibson hit hard by the economic crisis?

Typically, we have not been affected very much by recessions and minor depressions. Last year was the first time I saw economic circumstances really substantially impact the music business. But it was not because people stopped buying. It was because people actually downsized.

So, instead of buying a new guitar, people were buying used instruments or they were buying two price points lower so that there was really no decrease in store traffic, but there was a decrease in pocketbooks and the consumers had to change their purchase habits.

Has the success of the video game Guitar Hero had a big impact on the music business?

I think the game has been really great for the guitar business, but not directly, since it has really not led to a substantial increase in the number of people buying instruments. It had a modest impact in the short term. But in the long term, I think it will have more of an impact. It won't be a spike. We won't get 30 million new guitar players. But I think it's one of many social things that make guitar playing something to strive for among the younger generation.

How is the German market and how does the future look?

It's been fantastic. Part of the reason is that we weren't in Germany directly until roughly two years ago. Consequently, we didn't have the retail relationships and we weren't doing as good a job as we could have. Now that we are directly here in Europe we are catching up and growing very substantially. We almost doubled [business] in Germany last year. And we expect to see considerable increases in sales in Germany and throughout Europe.

Guitars have become investments and a lot of people are buying antique guitars and putting them in bank vaults.

The right instruments, which don't necessarily have to be the most expensive ones, have been appreciating over the last 30 years better than the stock market. Of course, last year that would've been very easy to say, but in general it's been a consistent year-to-year increase. Even for non-investment grade instruments, it's very unique to buy a product that you could sell and recover a lot of your money from, 10 years down the road. There are very few things that retain value.

What are the new markets that Gibson is developing?

China is already one of the largest consumers of luxury products, even though, at this point, a lot of Chinese consumers are on the farm and not making a lot of money. But they are a significant factor in terms of luxury goods. So you go over to Shanghai and you see Maseratis, Porsches and Hummers on the street, which is quite unusual. That is just the tip of the iceberg. It will be explosive as the middle class becomes pervasive in that culture.

And there is a second big culture that also has a billion plus people - India - which is also developing very rapidly and is a very musical society. So we are investing very heavily in China and just this year we are starting up our India division. We expect to see huge growth as those two developing societies become affluent.

Interview: Andy Valvur
Editor: Toma Tasovac