Where Are We Headed…analyzing industry prospects for 2007

Catcher and philosopher Yogi Berra supposedly said, “It’s tough to make predictions, especially about the future.”

In a fractured kind of way, he’s right: it is tough. When asked, most would-be prognosticators will beg off on venturing predictions, often claiming the old crystal ball is a little hazy at the moment.

However, on the eve of the new year we were able enough to find a good group of industry people – manufacturers, whole- salers, retailers, and association representatives – willing to go out on a limb and venture forecasts on the year just now under way. Their opinions vary greatly, from bleak to optimistic, and the factors behind their predictions range from the price of gas and real estate to the lure of Playstation, iPod and other popular non-MI pastimes.

John Stoner, Conn-Selmer:

General view as to how 2007 is shaping up for the industry.
We feel 2007 for the industry will be flat to slightly up in the band instrument category, very similar to what we projected for 2006. We really don’t see anything on the horizon for 2007 that will significantly impact the industry one way or the other.

Overview of your company’s major initiative for the coming year.
We will continue working on improving on-time delivery, simplification of our programs, ramping Bach production up to previous levels, our new line of Leblanc by Backun clarinets and our new Selmer LeVia saxophones. We really have a lot of exciting things going on that will have a positive impact on our customers.

What do you see as the most serious “dark cloud” hovering over the industry?
The influx of the low-cost, poor-quality instruments from offshore. It will eventually impact a child’s desire to play a musical instrument as well as put some dealers out of business. They will be looking at the acquisition cost of the instrument not their total cost of the instrument.

What is the greatest opportunity for the business in 2007?
Producing enough of the greatest trumpets in the world out of the Bach facility to take care of pent-up demand. We are staffed to do that. The early comments are that under [recently appointed director of Bach operations] Tedd Waggoner’s leadership the quality of the horns is better then ever.

Other comments.
As with many other industries, there will continue to be dealer and manufacturing consolidations.

Terry Lewis, Yamaha Corp. of America:

General view of 2007:
Our industry is lagging overall business growth in general, and has been for the past several years. Because our business has a heavier dependence on discretionary income, this could be expected to some degree. The astronomically high cost of homes, and the fallout from 2001 market crash and 9/11 is still with us. Also, despite constant news about tax cuts, the encroachment of the Alternative Minimum Tax on upper middle income households of America has further depleted discretionary income among those who have traditionally been the source of growth for big-ticket items, especially home keyboard instruments.

With the flattening and likely pullback of home prices, declining unemployment, a generally healthy stock market, and reasonable interest rate/inflation stability for the foreseeable future, there is some opportunity for a sustainable upturn again in some categories. But we don’t see anything to indicate the explosive growth that we saw in the late 1990s.

Any “dark clouds”?
I believe that there are three. The first one is the multitude of products that compete for discretionary income for hobbies and entertainment. There have been over 70 million iPods sold to date since the inception of the product, and counting. A multitude of games and other forms of digital entertainment and devices have multiplied rapidly over the past few years. While there has been incredible growth of things that consumers may choose from, the amount of time that each consumer has to use these things hasn’t grown at all. Forget about the competition that exists within the musical products business. We are losing, as an industry, the macro market share battle to a much broader portfolio of products.

The second is the serious shortage of succession planning among traditional MI retailers. Quality MI retailers are getting more and more difficult to find. Clear plans must be laid by the founders and owners of strong retailers to ensure that they will be able to make a smooth transition to future management. Too many good retailers have disappeared for lack of this simple, necessary, and often neglected issue.

There is a third “dark cloud” that is more perceived than real, and its distribution of musical products through mass-market channels. A relatively small assortment of musical products are sold through these channels that are capable of exposing them to millions of people, 97% of whom will never enter a music store. This creates new demand, brand exposure, and interest. We believe, and we have statistical evidence to support the view, that this creates more demand than it takes from established channels. “Dark clouds” sometimes bring much-needed rain.

Greatest opportunities in ’07?
People that were born in 1946 are the first wave of the notorious “baby-boomers” and are just entering their 60s, and are now contemplating retirement. They are healthier, wealthier, and more open to trying new things than any previous generation at this age. During the next 24 years, there will be over 70 million of these people with a disproportionate share of this country’s wealth and spending power.

This same group fueled the school music boom decades ago, and later another boom as they gave their children the best of everything. Now we are about to get a third — and possibly the best —- chance ever at this unique, whale of a market. The musical products industry should prepare for it by developing products and programs to get more than their fair share of this business.

The operative term is “Recreational Music Making.” Yamaha has recently launched programs like the “Clavinova Connection” designed to exclusively serve this group. It is based upon research like that performed by Dr. Barry Bittman and Karl Bruhn who are also doing work for NAMM. We’ve also funded the creation of an independent research institute called the “Yamaha Music and Wellness Institute” which will perform ongoing research to support the validity of RMM. We have scientific evidence to support our products and programs that is as compelling as that which comes from the study of nutrition and exercise, and there is potential for much more. Few industries have anything like it.

I would like to invite all retailers and suppliers to get on this bandwagon with NAMM, which recently sponsored a well-attended RMM exhibit at the AARP Convention at the Anaheim Convention Center. You will be seeing much more from NAMM on this important subject in the near future to assist our industry in developing this fantastic market potential.

Brian Chung, Kawai America Corp.:

The truth is, any effort to prognosticate on 2007 would be pure speculation on my part.

Lately, I’ve stopped trying to predict the future because everything has been so volatile.

So, I suppose that would make for a safe prediction — continued volatility in 2007. If interest rates start dropping, the Iraq war ends and terrorism stops, ask me again.

In football, when throwing the long pass isn’t going well, you work to establish the running game. That’s been our strategy in an unpredictable economy. Our version of the “running game” is to strengthen our offerings at every price point. We just introduced our first new institutional piano in 15 years, the UST-9. At NAMM, we’ll show a terrific new digital piano, the CA-91, that features a resonating wooden soundboard. We’ve also launched a new Acoustic Piano Recording System, the PR-1, that let’s you make high-quality CD recordings on any acoustic piano. The goal is to be competitive in this quirky economy, which should prepare us to “throw the long pass” when retail makes a strong, stable comeback.

On the other hand, good products are only part of the equation. They don’t mean much unless you have people in the stores telling your story, especially with more expensive items like pianos. So, we’ve been focusing on salesperson training. In 2006, we hosted two large sessions of our Kawai Keyboard Academy — one on each coast. We’ll probably do the same in 2007. Our dealers have really embraced those events.

As for the industry’s opportunities, it’s no secret that the baby boomer generation has money and is looking for ways to spend it. The piano industry, through PMAI, is launching some solid education programs to attract the adult market. If these growand expand — as we think they will — we will have found our marching orders for the next decade.

Dennis Houlihan, Roland Corporation U.S., Chairman, NAMM:

General view of 2007.
2007 will continue to be a difficult business environment for many dealers and consumers. In general, Americans are still getting acclimated to higher fuel costs (which are still lower than the rest of the world!). So, consumer spending will continue to be impacted for the short term.

Your company’s major initiatives for the year.
In addition to launching a host of new products, we are continuing to fine-tune and improve our customer service — both to our dealers and to our end users. We are introducing our “Backstage Pass” access on our Web sites. This feature will give interested Roland, Boss, and Edirol customers unprecedented access to our on-line and live customer service team along with special e-mail updates and a host of other enhancements.

Any “dark clouds”?
The darkest cloud is the continued fight which live music must undertake in order to find its place in today’s home entertainment environment. I’m not talking about listening to your iPod or watching a music video. I am talking about the rightful priority that playing the piano or guitar or other musical instrument should have — right there next to the big plasma TV and Sony Playstation 3. Somehow, as an industry, we have to continue to “reinvent” making music and make it more interesting and vital to today’s busy lifestyle-oriented consumers.

Greatest opportunities in ’07?
Continuing to find new ways to get people to visit their local music stores — to learn about making music — and making music a viable leisure-time activity.

Other comment.
The music business has never been an “easy” business. We’ve always had to work at it — be it band instrument, rock ‘n’ roll, or home organ sales. It’s no different now. We just have new and more varied forms of competition — like the Internet, DVRs, iPods and others. It is still a business where instruments are sold one at a time to people who buy them one at a time. It’s not easy and it’s not going to get any easier.

Bob Saunders, Kaman Music:

General view of 2007.
This year will continue to be a challenge for most of us in the music business. While there are examples of both dealers and suppliers that will do well, the industry itself is and will remain slow. We as an industry depend on discretionary income and right now that is in short supply. While gas prices have subsided somewhat, they are still abnormally high. All energy-related commodities remain expensive, and costs continue to go up. The bottom line is that retail traffic is off, and sales are reflective of that fact.

Your company’s major initiatives for the year.
Every one of our brands has major new products being introduced in 2007. Ovation, Takamine, and Hamer all have new models that will be introduced at the NAMM Show. Gretsch will be introducing new Catalina and Black Hawk kits, Gibraltar Hardware has some new and unique stand products, Genz Benz will be expanding the popular Black Pearl amp line, LP and Toca are both introducing new colors and new models and the list goes on. In short, Kaman Music is not resting on its laurels. We have an aggressive new product plan that we are sure will excite consumers the world over.

Any “dark clouds”?
Lack of retail traffic continues to be the single biggest issue we face. Dealers and suppliers need to work together to get creative on how to combat this trend. It cannot be business as usual for those of us in the music industry in 2007. Plans need to be made NOW for local promotions to get kids back into music stores in 2007. The dealers with aggressive promotional plans always do the best in times like these.

Greatest opportunities in ’07?
We all need to adopt the mentality that we are not strictly in the “musical instrument” business but in the world of retailing. Increasingly, our industry is being driven by the same forces that drive the largest retail companies in the world … Wal-Mart, Federated, etc. If we would all study what is working for them in other retail segments, it might just provide us with a road map as to how we can do a better job in what we do on a day-to-day basis.

Keith Gard, Jupiter Band Instruments, Inc.:

General view of 2007.
The band instrument side looks stable. I’m not sure what the extra funding in California means although it is very substantial and could result in a one-time increase in purchases of institutional instruments.

Combo side has been weak at best for most of 2006 with no appreciable change going into the holiday season. We don’t see any signs of it improving at this time so are not optimistic that it will be a year where we can expect much, if any growth.

Your company’s major initiatives.
For Jupiter, we have the introduction of professional line of trumpets, trombones, and saxophones and the Azumi Flutes with the Altus professional headjoint. We’re also properly introducing through clinics and master classes the many new Jupiter artists such as the Boston Brass, Michael Davis, Dave Fielder, and the Dirty Dozen Brass Band.

Mapex has exciting new drum kit colors and configurations at prices that provide high margins for our dealers.

Any “dark clouds”?
The financial strength of both manufacturers and dealers. The market is very competitive, requiring extra attention to the details to remain strong financially.

Greatest opportunities in ’07?
Growth with existing dealers who support our policies and products.

Other comments.
The economy is good, unemployment is low, and interest rates are reasonable, all of which should add up to good consumer confidence. Our product needs to be exciting to help the dealers draw those consumers into their stores.

Steve Patrino, The Music Link:

General view as of 2007.
We have a positive outlook for 2007. Dealers are educated about higher-quality import products. They’re welcoming new designs and original ideas, and appealing to buyers tired of seeing the same old thing. Dealers and manufacturers have had a year to absorb where the market is going, giving them a chance to keep their inventory in check and make smart decisions.

Your company’s major initiatives.
We’re going to be filling out the new product lines we introduced 16 months ago. Everyone’s looking forward to all our new models of Recording King banjos and more of our Johnson Carolina guitars. We also have new AXL guitars with original body styles and all-tube AXL amps, a John Jorgenson Paris Swing mandolin, The Loar “Golden Age” mandolin, and more. Dealers have been eagerly anticipating our Dell’Arte guitars, which ship this February. We’re also working with Ming-Jiang Zhu, the winner of this year’s gold award at the Violin Society of America. He’s won gold and silver medals multiple times and he’s producing our newPalatino Concertmaster violins, which are truly amazing.

Any “dark clouds”?
Overproduction is the biggest problem. Import cookie-cutter products are being flooded into the market and, in many new venues, forcing discounts that hurt business. The products we offer are definitely not off-the-shelf. We have new products with mid- to high-end features, and unique designs that are only offered by us. We also enforce a strict MAP policy of 25% off list.

Greatest opportunities in ’07?
Offering new and original products that you can’t get in any other store. Dealers need to take advantage of high-quality product lines that aren’t available at mass-market levels. We’re giving our dealers unique brands, such as Recording King, The Loar, Paris Swing Co., our Johnson Carolina Series, and Palatino Concertmaster violins. We’re also working with artists such as John Jorgenson, Angelo Debarre, Robin Nolan, Raul Reynoso, Todd Taylor and others to fully build these brands. We’re seeing great opportunities for business in 2007 and the response from our dealers has been overwhelming.

Craigie Zildjian, Avedis Zildjian Co.:

General view of 2007.
Like many industries, 2007 will in great part be driven by the economy. Because our industry depends so much on discretionary income, much will rest on how confident consumers feel and if that confidence propels them to buy. There are many positives working in our favor for 2007 like the solid base of people playing music both professionally and as a hobby. Then there’s the continued thrust of new or beginner players entering the market and then there’s the ability of manufacturers to innovate with new products and programs to feed the base of players. The Internet will also continue to bring music to more people around the globe. It not only brings it to them as an art form, but it brings information regarding products, instruction, etc. all of which is vital in attracting new users.

Overview of your company’s major initiatives.
On the product side, we will continue to search for new sounds that expand the sound palette for our players. We’ll also continue to find innovative ways to reach and talk to our consumers whether they are in stores, on the Internet, at concerts/shows, or anywhere else our product shows up. As the market leader, we realize the responsibility we have in continuing to forge a new future while honoring the past.

We are also launching a new internal project designed to make sure our systems are “talking to each other” with the goal being better overall service to our customers.

Any “dark clouds”?
No dark clouds, but there are some real opportunities.

Greatest opportunity in ’07?
The greatest opportunity continues to be better management of our assets. Be it brands, inventory, equipment, etc., the better they are managed and maintained, the more we can invest into business drivers like new product development, advertising, consumer research, and partnering with our retail customers for mutual benefit. I think this holds true regardless of whether you are a manufacturer or a retailer. And of course, every business benefits by continued investment in their people. We are always trying to help our people improve their performance and, as a company, we appreciate the need to strike the right balance between work and home life. We are also always looking for talented people, with diverse backgrounds to bring to our business.

Other comments.
We are very optimistic about the future. As mentioned, our industry is one that provides people entertainment and continues to attract people of all demographics to music and music instruction, so it is well-positioned for continued growth. Coupled with a stable economy and confident consumer, we feel like 2007 could be another banner year.

Bill Carpenter, Hamilton Stands:

To begin I would like to quote The Economist magazine; “Predicting the future is notoriously difficult, and the grander and more elaborate the vision, the more likely it is to be proven wrong.” So, to save myself likely embarrassment a few months hence, I will offer a few seemingly safe thoughts about 2007:

The economy is unsettled and will remain so into 2007. Housing prices have generally stopped increasing (and are falling in some areas) while instability in the Middle East could deteriorate quickly, sending oil prices higher. These both would have an impact on consumer psychology and spending similar to what we experienced in the late spring and summer of 2006. Additionally, productivity began to fall in the summer which could signal an economic slowdown.

Inflation will increase. Already, many U.S. importers have experienced double-digit increases from Chinese suppliers and the recent weakening of the dollar will result in further increased prices from China as well as from other countries. If the Fed increases interest rates to slow inflation it will have a negative effect on consumer spending.

Social interest in music will remain high with increased accessibility to recorded music likely having a spill-over effect into music participation.

Music education spending is increasing as the state budget crises of two years ago are now behind us. Grass-roots advocacy for music and the arts will continue to be more effective than ever before.

Music trade credit policies and pricing should become more uniform and fair. Recent high-profile bankruptcies have highlighted the risks of liberal credit policies and off-book pricing offered to large dealers.

Margins will continue to deteriorate as competitors focus on price as their primary sales tool (after offering value-adding incentives to their customers).

Chasing our tails to find the new lowest price source will continue and perhaps increase. Many importers, including Hamilton Stands, have now “moved past” China as a source and are looking to other Asian countries, including India, for lower prices. Africa is mentioned increasingly as a potential low-cost source. Hamilton Stands and others will increasingly source product overseas as adding value through U.S. manufactured products continues to be challenging.

Overall, I see 2007 as a year of modest unit growth and lower margins. Suppliers will appreciate the consistent performance of their small to mid-sized customers.

Tim Kletti, Music Go Round:

General view on 2007.
I don’t see any progress with the “industry.” The issues still remain from years ago … no marketing direction, lack of visibility in the marketplace. Hard costs are on the rise, but retailers are doing little to react to it. So, we are working harder for less margin dollars and more stores in the industry continue to close.

In the past four years, our industry has lost two of the five largest chains, yet no warning bells are ringing . … this is a big concern. What has our supply side done to ensure their MI dealers are not going to vanish? Many have spent a majority of their time positioning their products in big-box, non-MI retail. I think many of them have spoken already! They are finding alternatives to our “industry” to keep their businesses afloat!

Overview of your company’s major initiatives.
We need to create visibility in our markets … we cannot out-market the big-box, but we CAN do a lot of things better. Music Go Round’s focus is on staying who we are and giving the customer the best experience possible. We will strive to stand head and shoulders above the competition, give our customers the support and service they deserve and work hard to keep their business coming back.

Any “dark clouds”?
We are not developing new musicians. The initial reaction to VW/First Act’s promotion by most in this “industry” was shock or humor … my understanding is the VW will sell 40,000 cars in those three months. If that can create 40,000 NEW guitarist, then Music Go Round is ALL for it! My hat’s off to First Act for finding a very creative way to promote the guitar! This is what MI retailers should expect from a vendor … market their product to the masses to create demand.

As I stated before, our industry lacks visibility in the open market … MI stores simply do not market themselves well. In three short years, big box, non-traditionals are becoming the “default” place for beginners to purchase their initial instruments. They are marketing themselves at an entirely different level, they have overwhelming vendor support, and because of the volumes they do, can operate at much smaller margins. The alarming rate of MI store closings over the past few years supports this.

What is the answer? Stick your neck out and commit to a marketing plan … don’t lose visibility. Most consumers WILL shop at a music store, if they know you exist. We can offer so much more to a customer to create a lifelong musician instead of a passing hobby. Lessons, service, support, repairs and education need to be a big part of our daily process, many of which you cannot put a direct revenue stream to. The factors cannot have a hard ROI; it is simply how we need to behave to stay competitive. This “industry” has been very adverse to change … I say, you don’t change and adapt? You will get run over!

Greatest opportunities in ’07?
We have our initiatives and plans for ’07 and beyond. these initiatives will separate us from the crowd. At this point, MGR is looking only to itself to grow. We cannot expect outside influences to support or promote us.

Other comments.
NAMM is a VENDOR association. Many of the independent MI stores are expecting NAMM to help enforce “fair trade” regulations in the industry. This just cannot be a priority for them. The trade shows pay their bills (and their cash flow is NOT coming from badge fees or annual dues!) NAMM’s clear focus is that the vendor side continues to manufacture and distribute product to retailers (not necessarily MI retailers) and that they can show “growth” in our “industry’s” numbers.

As per NAMM’s 2006 global report: Fretted instrument retail sales grew 12.52% from 2004 to 2005. Did YOUR Fretted instrument sales grow by this percentage? NAMM admits that this growth is solely attributed to the inclusion of the big box, non-traditional.

Ask a MI retailer if Target or Wal-Mart are part of our “industry”… now ask NAMM or your vendors. You will get a much different answer from both parties. We simply cannot expect NAMM to focus on defending/protecting the MI-specific retailer … it is, as I said, not a top priority.

We, as an “industry” of MI-specific retail stores, must protect and rely upon ourselves. We must take our businesses much more seriously. We must learn and commit to marketing our businesses and find a competitive edge … and OWN it. I know that Music Go Round is firmly planted and has a vision for our future. If more MI stores can find their competitive edge, they will have the same future. Our “industry” can remain dominated by MI-specific retail stores… as long as consumers know we exist and we can cater to their needs.

Neil Lilien, Meisel Stringed Instruments:

I am hoping that the recent consolidations and bankruptcies of 2006 are not the signs of things to come, and 2007 will be a year of growth in the band & orchestral segment of our industry. The signs, I think, are good.

Although, because of low-priced imports, prices are lower, quantities are up, meaning more people are learning to play. This fact is well established throughout our industry.

Due to the efforts of several Support Music affiliates, including NAMM, California is allotting over $100 million for music and arts for each of the next five years, and $500 million the first year for the music, arts, and physical education infrastructure. Hopefully, because of this, other states will recognize the value of music education and will be more forthcoming with funding.

New and exciting string programs, including the National String Project Consortium, are now in operation and promise to greatly increase the number of string players and the number of stringed instruments sold.

Tony Blair, Kay Guitar/Dealer Direct, president, Music Distributors Association (MDA):

General view on 2007.
I don’t see many changes happening in the industry in the next six months. We are an industry that often is controlled by the whims and moods often outside our control. The ’60s brought us the Beatles and the youth-heavy population created a demand for guitars. The ’70s were a mixed era that showed decreases due to disco, DJs and synthesized music, high interest rates, coupled with a declining target market of preteens and teens. The ’80s brought the advent of more video games, higher prices, and a small increased interest brought about by a few teen and pre-teen nationally featured bands. The ’90s grew with the healthy economy, but brands that were traditionally pegged at price points of entry level, mid-priced, and high-end professional became more homogenized. Entry level products like Kay and Harmony, mid-priced products like Yamaha and Alvarez … and high- end like Fender and Gibson all now had a guitar for under $200.

The music instrument industry coming into the new millennium had new challenges of Internet sales, mega stores, corporate mergers and buyouts, and “Esteban infomercials” with direct consumer sales have changed the way business is being done. With the influx of better-quality products from China and lower prices, we got higher volume but at the expense of smaller profits. A competitive market has further eaten away those declining margins and shrinking sales, making stores cut inventory and forced some stores to close their doors. We have seen more dealers going out of business in 2006 than in 2005.

Today you can find guitars everywhere: Bed, Bath and Beyond, Best Buy, Wal-Mart, Target, etc. This trend of guitars at the mass merchants was similar in the ’60s but the players were K-Mart, Sears, JC Penny’s and Montgomery Ward. In the ’60s, the major chains carried guitars due to a demand from the strong and growing teen population that wanted to become the next Beatles, The difference at that time was that instruments were priced at an entry level of $14.99 and were brands like Teisco, Checkmate, and Silvertone.

Today, the mass merchandisers sell high-end brand names for under $200. But in 2006 there is no strong idol imagery that the teen market wants to emulate. Some of the guitar business lost to the mass merchant is because of price, but the majority of guitars sold are to a market the music stores never went after, “the impulse buyer.” I don’t think the typical consumers says lets go to Target or Bed, Bath and Beyond and “check out” their guitar line. They saw a product and bought it, even if it was right next to the tires and car batteries. Stores don’t promote to that market of the consumer who thinks “I always want to play guitar but no one gave a reason or told me it was affordable.” It’s sad to see all the companies that waste advertising money for products that would only appeal to the existing musicians with brands models and terms only recognized by musicians.

Unless there is a new “hot group” that makes everyone under 18 run out to buy a guitar I don’t see the market growing. The merchandising of the past was selling only the instruments without accessories. In order to learn to play you also had to buy a pitch pipe and an instruction book, which drove a lot of the “K-Mart blue light specials” to the local music store for lessons. Today the kits come with electronic tuners and DVD instructions so fewer entry-level buyers ever need to go to a store until they need strings and picks and even those items are at some mass merchants.

Overview of your company’s major initiatives.
We have two companies: Kay Guitar Company, a manufacturer of musical instruments and accessories and Dealer Direct, a wholesale distributor with warehouses in Indiana and California. Kay will continue to ride the cusps of the market, merchandising Instruments under $150 list and we are working on niche markets of reviving those “kitsch and campy” ’50s cool guitars with the Large Kay “Kelvinator” headstock. These instruments will be in the $500 to $800 price range and will be music store-oriented to go after a growing segment, the retro market.

The distribution side, “Dealer Direct”, was started only in 2004 and our growth has been rapid. This rapid growth is due to adding more brand-name vendor’s products to the Kay lines and heavy marketing and advertising campaigns. I started in the music business in the late ’60s in Chicago. There were 26 music stores in a two-block radius. I found it takes about three years to learn the business part of music. Next year our staff will be into their third year. I know we will grow, but it is a struggle. We aren’t even number-two yet, so we can’t just “try harder”. We are the newest distributor in the market of mega-distributors so we have work harder, ship faster, price better, give better customer service, and win over a market that has been struggling. We will survive and grow. I think the mega-distributors are going to have a tough time of increasing market share and keeping overheads in line.

Any “dark clouds”?
The same as every year, finding quality employees that are profitable to the company.

Greatest opportunities in ’07?
I remember reading from an article on the AMC some 20 years ago saying that for every 12 people that buy an instrument only two ever learn to play it. Hopefully Target, Sam’s, Costco, Bed, Bath and Beyond etc. will create 12 more prospects that never would have gone to a music store to buy an instrument. This happened in the early ’70s, the two out of 12 continued to the next level and shopped in the local music stores.

Other comments.
Qué será, será. What will be, will be. There have been too many recent shakeouts, bankruptcies, buyouts, and industry changes to predict what the outcome will be for the music industry until at least six months after the Christmas season. Ultimately, the weaker stores and distributors will be forced to close after the first of the year, unable to survive until next Christmas.

Dewey Kuhn, Rodgers Instruments:

General view of 2007.
Our focus is on improving services and support.

Any “dark clouds.”
A diminishing commitment to music education in schools and changes in church worship music.

Greatest opportunities in ’07?
Finding new market niches and offering new services and support mechanisms for dealers, technicians, and end-user customers

Other comments.
As it has been for the 40 years I have been in the business, each dealer’s sales success is based on his or her commitment to promotion, training, and execution. Certain dealers excel regardless of what is happening with the economy or the industry. It is the old, old story: you create your own success.

Becky Lightfoot, Art’s Music Shops, president, Retail Print Music Dealers Association (RPMDA):

General view of 2007.
For those businesses that already have a good, stable customer base, there will likely not be too many problems or glitches for continuing on with business as usual. Those that will suffer most in the coming year are the companies that have/had relationships with all involved in the Brook Mays bankruptcy, whether it was directly or indirectly.

Overview of your company’s major initiatives.
It’s always our goal to do all that we can to support music education (with clinics, conventions, workshops, master classes, etc.), while still maintaining our profit margins in all that we do. While it’s great to gain more and new customers, it’s always good to concentrate on getting more customer value out of the customer base we already have.

Any “dark clouds”?
Without a doubt, the continuing consolidation in our industry, in every sector. Getting rid of the weakest link(s) in our business is one thing, but paring down so significantly on “choice” for the customer (both the retailer and the end-user) is not.

Greatest opportunities in ’07.
Finding the long tail curves of our business. It will be to our advantage to find enough of and promote the modest sellers, industry-wide, that we stock/carry in our business; those where total sales either equal or surpass the best-sellers of the industry (dollar-wise, not units.) The best-sellers may be some of the things our competitors are concentrating on, and beating us with. So, don’t waste our time on those; we’re not going to win. Instead, we must find those products we know we can promote, sell, and win with. And sell lots of them.

Other comments.
We are in an era of consumer choice, where product is available to virtually anyone at any time; it will up to us to zone in on what parts of the pie we want to concentrate on. Particularly for the “mom and pops” of the industry, creating lifetime customer value and implementing niche marketing will be key.

Alan Poster, Ace Products:

General view on 2007.
2006 was a strange year. Some months were up dramatically while others were equally dramatic, but in the opposite direction. All in all, we should end the year up, but less than 10%. My sense is that this will hold true for the industry, i.e. flat.

We could not put reason to anything that happened in 2006 and I am quite interested in how the year ends. The predictions for Christmas are as mixed as the year was.

Overview of your company’s major initiatives.
We have or are developing new products with a creative look and feel. The music seller needs some fresh new ideas and looks in order to attract sales in ’07. At this juncture, my guess is that the new year will be more of the same for the first quarter, at least.

Any “dark clouds”?
Historic methods of selling are changing quickly. More Internet input on pricing and methods. Could be a dark cloud for some depending on how and if they react. As we have recently seen, there has been fallout because of this change and the inability to adapt.

Greatest opportunities in ’07?
Historically, when there are major changes in market situations there are “clouds” for some which means opportunity for others. It will be those who can sense the change and react who will find the opportunity. And it will be pervasive. I believe that the word NEW will have greater meaning for us all — new ideas, new products, and new methods in the market.

Other comments.
We will be seeing a bit if inflation from here on, not the deflation that we have been living with for some time. This will have an effect in how we handle inventory as this pendulum swings.

Alan Cabasso, GCI Technologies (formerly Gemini):

General view on 2007 is shaping.
I can only speak about our sector of the business, but I think 2007 has the potential to be one of the most exciting years in our business in ages. In the last two years, digital music distribution and the iPod have revolutionized how people purchase and consume music and the DJ products market has to respond in kind.

Your company’s major initiatives.
GCI Technologies’ major initiatives for 2007 include:

Expansion of the Cortex product line presenting the advanced HDC-3000 dual digital music controller and the HDTT-5000 – the first-ever USB-compatible Digital Music Turntable/Controller which we expect to turn the club world on its ear.

Expansion of the iKEY-Audio product line introducing the iKEY Plus Portable USB Recorder, replacing the original iKEY released last year, and the iKEY Pro USB Field Recorder.

Rolling out a newly redesigned line of Gemini mixers, CD players, speakers, and wireless systems.

Any “dark clouds”?
Fly-by-night Internet retailers. While the Internet has revolutionized the retail business, manufacturers do our best to keep everyone in business by maintaining a fair margin via MAP. Internet MAP-breakers create unfair competition and make it difficult for the mom & pop and the major retailers to sell products.

Other comments.
After building our Gemini brand’s business on vinyl turntables for almost 35 years, GCI is embracing digital technology with open arms. Not to say vinyl is dead — it’s going to be there as long as there’s demand — but its time as a predominant format has passed. If the response to the launch of our Cortex HDC-1000 dual digital music controller is any indication, this will be the trend of 2007.

Jason How, Rotosound USA:

General view on 2007.
The Chinese show is opening up to Western companies. The Chinese customers are becoming more “Westernized”, [Music China] will become the third-most important show Internet buying … also expect booming guitar sales to continue.

Your company’s major initiatives.
More investment in technology on the back of the last few years of investment.

Any “dark clouds”?
Dubious distribution channels are being opened up and retailer profit margins is being eroded.

Greatest opportunity in ’07?
Further development of new and existing markets.

Bob Archigian, E. & O. Mari/La Bella Strings:

This has certainly been a tumultuous year, what with several of our most stalwart firms packing it in. It all goes to show you that small is big.

Sometimes we have this notion that with all the modern MIS at our beck and call we have better control, but, it all comes down to the human factor. We all will need good people, qualified people, to grow our businesses, and there in lies our biggest challenge. As we see more and more small firms eager to grow, even with adequate finances, there is always the need for good, educated personnel. When the larger box operations are able to depend on driving their businesses from the executives on the top, the medium and smaller stores are not able to afford that luxury. Good, educated people are absolutely necessary to move our businesses forward.

I still believe in the family-oriented store — the stores that cover all the bases, offering a wide variety of products and personalized service, with focus on the customer. Training of personnel on the floor is just as important as the training at the upper level. Customers may shop price on larger items, but they still want service. Of course we should never forget that this focus on the customer would eventually bring the necessary profits and better compensation to the floor level as well.

Too much focus has been on the high-end market of products. Here at E. & O. Mari / La Bella Strings we realize the importance of the accessory business. Our firm has been making strings for over 490 years.

Certainly strings are an integral part of the accessory business, and a profitable one at that.

Even with the influx of low-priced foreign products, customers recognize quality and demand service.

We make every effort to satisfy the customer on all levels. Service is a most important ingredient to our business model. It is important for La Bella customers to have a good understanding of products. Sometimes that is not available from our distribution network, but our door is always open for information and direction. [Clothier] Sy Sims said it to the point, “An educated consumer is our best customer.”

Music lessons and retail should go hand in hand. They create a necessary flow of customers and profits.

The music lesson aspect of our business is often passed over as being too much work. Well, it is work, but the outcome is worth every ounce of it because music lessons generate accessory sales, rentals, sheet music sales, etc.

In reality, the stores that have consistently prospered through even the most difficult of times have been well rounded in offering their customers those services and products that their family needs musically.

Box or super stores should not be the thing we point at as to why things do not work. We have to look inwardly so that we may realize where we can tweak our operations. Focus and have a plan.

The efforts of NAMM with its determination to bring focus on music education should make the point.

They have been the leaders of making the public and our leaders aware of the importance of music in education and in our lives in general. The rest is up to the industry as a whole.

Retail brick-and-mortar operations have to compete with e-commerce sites. Here is where many retailers have prospered. Seeing the rising competition from online operations, many retailers have developed their own successful online operations. Interestingly enough, clerks find that they spend more time online answering questions than on the retail floor. Hmm, isn’t that interesting.

Many years ago, the importance of attending a NAMM Show may not have seemed important, today it is absolutely necessary. Owners and key personnel should be at NAMM, where futures are developed and inspired. It is impossible to read or have brought to your doorstep the incredible variety of new products that are literally in your face at NAMM. And the education seminars are priceless!

The interaction with the industry people and colleagues is also priceless. Broaden your vision.

If you do not participate you could lose the opportunity of what could be.

This year is my 50th year in an industry I have never fallen out of love with.

Tim Laskey, Wyman Piano:

General view on 2007.
We believe that 2007 will see continued growth for the music industry in general, as well as for Wyman Piano in particular. Although the piano business has been very tough for many this year, Wyman has managed a sales increase by giving our dealers the opportunity to have the products that are driving the retail piano business right now.

Your company’s major initiatives for the coming year.
We will launch the new Wyman Pianoforte line of handcrafted grand and vertical pianos at NAMM in January. This new line fills a niche between our traditional Wyman models and the other major brands our Wyman dealers carry, offering them a valuable new profit opportunity. We also have an upgraded version of the popular factory-installed Wyman CD player piano system, which will make us even more competitive in this important segment. In addition, Wyman is supporting efforts by the PMAI to develop Recreational Music Making (RMM) classes for piano, an exciting new initiative that we believe has the potential to generate interest in the piano, enthusiasm for our products, and ultimately increase sales as well.

Any “dark clouds”?
Gas prices! For the past couple of years, when gas prices have gone to historic new highs, the retail piano business in general has suffered. When gas prices have come back down, then the retail piano business has improved.

Greatest opportunity in ’07?
By expanding our product line with the Wyman Pianoforte brand name, and our factory-installed CD player piano system, Wyman Piano will create opportunities for our dealer network by having the right products at the right time for them. We also see the exciting new opportunity that a successful RMM piano teaching program can provide for our dealers to expand sales and profits.

Other comments.
The piano business will be grown by the dealers who get out of their stores and promote playing the piano with all age groups. This will not only be done with remote sales promotions, but also by targeting the age group of customers who are the “buyers.” We think 2007 will be another year of continued solid growth for Wyman Piano.

Paul Murphy, M. Steinert & Sons:

General view on 2007.
I believe we will experience better business than our poor 2005-06 results.

Your company’s major initiatives.
We see the new Essex line from Steinway as being an excellent seller. These pianos are being very well received, although there is some concern about supply.

Any “dark clouds”?
In pianos, I see far too much manufacturing capacity, especially in China, supplying a weak demand. Fewer music store fronts seem to be driving suppliers to big boxes.

Greatest opportunities in ’07.
Staying the course in client generating, prospecting, nurturing, and selling, especially top-end selling. Other than that, I see no big opportunities on the horizon.

Eric Loader, Elation Lighting:

General view on 2007.
Overall, I think 2007 will be another year of growth for our industry driven by new product releases.

Your company’s major initiatives.
We are launching the most products in our history with over 20 new products entering the market – a combination of Automated Lighting, LED Lighting, and control solutions.

Any “dark clouds”?
As always, companies offering products at profit margins which are short term-based, not allowing companies to provide long-term quality, backup, and support.

Greatest opportunities in ’07?
LED Lighting is now getting brighter and brighter and more affordable. The entertainment market can now start to embrace all the advantages of LED for stage and effect lighting! Watch out for more LED!

Other comments.
Training and education is our focus for 2007. We will be launching our Elation Roadshow and taking much of what we offer at trade shows directly to our customers in the coming year … a lot of travel and hard work, but the benefits will be great for our customers!

Ron Larcombe, Power Group Ltd., president, Music Industries Association of Canada (MIAC):

General view of 2007.
The MI business was strong again in 2006 and all indicators point to a strong 2007.

Your company’s major initiatives for the coming year.
We will look to grow our U.S. distribution business.

Any “dark clouds.”?
I don’t really see a serious dark cloud.

Greatest opportunities in ’07?
I think the greatest opportunity is for MI retailers to capitalize on the vast amount of entry-level instruments being sold through the large consumer stores to first-time buyers. MI retailers could grow their customer base substantially and reaching out to these new consumers through lessons would be a great start.

Gerhard A. Meinl, JA Musik:

General view of 2007.
Energy costs as well as material prices for brass and nickel silver remain a big question mark for 2007 and the mid-price segment, necessary for the bread and butter business, is put under pressure as a result.

Your company’s major initiatives.
Pursuing R&D for new models developed in close cooperation with musicians and proving what quality from Germany means.

Any “dark clouds?”
That every R&D effort is copied illegally in China the next day!

What are the greatest opportunities in ’07?
There will be new alliances worldwide of manufacturers and dealers at all levels.

Other comments.
Global political instability is a risk.