In Defense of Good Guitar Amplifiers

April 13th, 2012

This is somewhat a continuation of an earlier blog regarding the benefits of a good guitar amplifier, owning more than one amplifier and also the general state of amplifier sales.

Over the past decade we’ve witnessed a couple significant trends in amplifiers. One of those trends was the rise of the boutique amplifier business. This trend may have peaked at the during the recession of 2009, but there has been an explosion of small builders making everything from faithful vintage reproductions, to interesting and creative new designs. The boutique boom may have also reinforced the realization that 15-30 watts is typically more than enough for most jamming or club situations.

The rise of digital modeling amplifiers was not originally a topic that I was going to address, but it at least deserves honorable mention. Early pioneers like Johnson and Line 6 drove the concept that a player could in theory have many historic amplifiers in one cabinet. This has become a permanent fixture in the amplifier world, culminating in high end audio products like the Eleven Rack and the Fractal Axe-FX. Some of these products have frighteningly good emulations, although typically the more “processed” the sound you are emulating the better they perform. Getting a Fractal to sound like The Edge is more satisfying than getting it to really sound like a Deluxe Reverb.

The other significant trend over the past 5-7 years is the rise of really inexpensive tube amplifiers. In my opinion, once the boutique industry proved that simple low-powered amps were a great way to get wonderful tone at reasonable volumes, manufacturers with access to low cost sourcing took that concept to overseas with the idea of offering much lower cost with the same features. If you think about it, a 15 watt amp with three tubes and four knobs is not technically to make, and in China it’s also incredibly cheap to make. So now instead of paying $1500 for a hand-wired Tweed Deluxe clone, a player can go to their local big box and get a 10 watt all-tube Chinese screamer for $299.

So the trend these days is that players are buying fewer amplifiers, and they are also buying cheaper amplifiers. In 2008 the average price paid for an amplifier was about $340, and there were 1.1 Million sold. In 2011 amplifier sales were 900,000, and the average cost had dropped to $255, 25% drop in average price (in contrast the average guitar price over this period dropped only 9.8%). This is a significant trend over a short period of time, and higher end amplifier builders must be feeling it. While the drop in average price may be partly due to post-recession caution and less disposable income, I think there is also a perception that, “Hey, it’s got tubes and it’s a grand less, why spend more?”

Why indeed. Guitar players incessantly focus on their axe, but often treat the amplifier as an appliance that will instantly transform the wonderfulness of their guitar into beautiful music. It’s almost as if you could plug into your washing machine and essentially get the same tone. Truth be told, the amplifier is at least 50% of “your sound,” maybe more. Heck, the just the speaker in the amp is a major determining factor in how you sound. Amplifiers are inherently complex and every component — transformers, capacitors, type of tubes, layout, speakers, component values — has a contribution to the overall quality of your tone. Every manufacturer has a cost target they need to meet, but there is no way that the $299 amplifier manufacturer pays the same attention to detail regarding component selection than the guy making the $1000 amplifier does. When a manufacturer chooses to save $1.50 by installing an inferior speaker or transformer, they risk making an otherwise reasonably good product into something flat and uninspiring.

With amplifiers it’s not just the labor that costs money, it’s the hardware. A worker in China can solder just as well as a worker in the USA. They can probably fabricate a cabinet and apply tolex just as well too. It’s not as important that you can solder, it’s what are you soldering. Is it a transformer made by people who really know what makes a quality product optimized for guitar, or is it a transformer that went out for bid and was chosen because it was $.15 cheaper?

Historically, China’s edge has of course been labor. And while the landscape in China is changing, in general labor has been cheap, and the majority of their costs are in the materials. When it comes to manufacturing, they are much less sensitive to labor cost as they are to material cost (in many ways the complete opposite to the US). When a Chinese manufacturer needs to reduce cost, there is much more leverage in reducing material cost than labor cost (this is changing too: See Indonesia). The plain truth is that China is a very good place to assemble product. The risk in China is not the ability to assemble quality products, but the quality and reliability of the material supply chain. With material cost being king, there is intense pressure to squeeze every cent out of material cost, often to the detriment of product quality.

The point is that component quality and selection is critically important to the sound qualities of a guitar amplifier, and the costs of these materials are essentially the same regardless of where the product is manufactured. The $299 guitar amplifier is not using the same components as the $1000 amplifier, period. The parts really matter, and at this time, most of the top quality amplifier components are not being made in Asia. Can you assemble a “kit” of top quality components and ship it to China for assembly? Sure, and you will pay to ship the components to China, and then you will pay to ship the amplifier on a boat back to the US. It will still cost less, but probably not a lot less, and that amp will have a pretty large carbon footprint.

Ultimately, good amplifiers cost money, and good amplifiers matter just as much as your guitar. I’m not suggesting that in order to be happy and have good tone you must spend at least $1500 on an amplifier. But to some degree cost and quality of sound are inextricably linked. Take the Vox AC 30 for example: They are made in China and run anywhere from $999 to $1500. Vox/Korg is taking advantage of lower cost labor, but they are also not skimping on components, including British-made speakers to China. They are made in China, they are not junk, and they cost real money.

A quick story: We were recently displaying at a guitar show that had a lot of custom builders in attendance. So this was not an amp show, it was a guitar show. But some of these builders were displaying guitars that cost thousands of dollars, but all they brought to demo product were $150 10 watt modeling amps. Result: They sounded like garbage. What were they thinking? On the other hand, we brought a couple Rivera heads, a Rivera 1×12 cab (and to be to “PC” a Rivera RockCrusher Attenuator). When somebody tried any of our guitars, people stopped and listened.

Playing through a really good amplifier that melds with your tone and style is a transformative and immensely satisfying experience. Choosing an amp needs to be taken seriously, and placed on the same level as choosing your guitar. You may even find that one amplifier — just like one guitar — does not adequately address the range of tones that you are looking for. However, once you find an amplifier that speaks to you, you may find that the constant urge to experiment with pedals, pickups and guitars suddenly becomes much less urgent.

Tags: Blackface, Dr. Z, Fender, Mesa Boogie, Rivera, Tweed, ValveTrain, Victoria
Posted in Amplifiers and Accessories, The Music Business | Comments Off

The Fender IPO – Good News for Guitarists?

March 11th, 2012

The announcement this past week that Fender is releasing its Initial Public Offering may sound like the American Dream come true. After all, isn’t it the goal of every company to someday go public and cash in big? That’s the image of an IPO anyway. However, not all IPO’s are glamorous get rich stories, and the numbers behind the Fender IPO are not all that rosy.

Disclosure: I am not a professional financial analysis, these are just my own observations from my experience in business over the past 25 years.

In rough terms, Fender had $700 million in sales in 2011 and a net profit of $19M. That’s an improvement from 2010 when the company posted a $1.7M loss. But a net profit of $19M on sales of $700M is a return of only 2.7%. If a 2.7% profit ratio sounds rather unexciting, that’s because it is. Whether private or public, a 2.7% profit ratio is concerning. In a private company while there might be pressure from an investor group (if there is one) their is are requirements to make the company’s performance public. Actually, the financial performance of many privately held companies may not be that great in Wall Street terms. To do some degree if the boss is happy, then everybody is happy. The true financial performance is known only to the person or group that controls the company

Once the company goes public, the financial performance is there for all to see, and of course stock price is closely tied to financial performance. Going public is a great way to raise capital, but the company is obliged to show its dirt laundry. How many investors can you attract with a 2.7% net profit, unless you have plans to do much better. And soon, because it’s Wall Street and they hate to wait.

The second issue with the Fender IPO is debt. The company has $700M in sales, but also about $240M in debt. The stated goal of this IPO is to pay down about $100M in debt, and the balance is for operating capital. There are a couple concerns with this: First, that’s a pretty high debt ratio, and as with any debt there are interest payments on the debt. Also, if the company is selling stock to raise additional operating capital, it could have a cash flow problem too. Cash flow essentially is: Are you taking in money fast enough to cover what you are paying out every month. Debt servicing costs, high inventories, and of course the pace of sales can all have dramatic affects on cash flow. It’s good to sell lots of stuff, but it’s cash flow that determines whether a company lives or dies.

The third factor is the role of Private Equity Capital (PE), in this case an organization called Weston Presidio. Weston Presidio is a major investor in Fender, with about a 40% ownership prior to the IPO, and plans are to retain a similar level of ownership afterward. Weston Presidio is not in the music business. They invest in everything from Restaurant Chains to Movie Theaters to Fender. The goal is to invest in a company, “help” it become more profitable, and then exit that company hopefully at a substantial gain. It’s not very romantic, but if done properly the investors make a lot of money.

Being “helped” can sometimes cause the company being invested in quite a lot of pain. Often a PE group will buy into a company with some amount of their own cash, and money they have borrowed. Once they have control of the company, the company will borrow money to pay the PE group back, effectively putting the company in debt. This is the classic case of Guitar Center, which was bought by Bain Capital and is now loaded with over a billion in debt. Guitar Center loses money every quarter because the cost of debt servicing wipes out its profits. Here is what Moody’s said about Guitar Center last May, “A Moody’s analyst concluded that growth in sales, comparable store sales, and profits will not be sufficient to trim the company’s approximately $1.6 billion debt load to a more manageable level.” So while I don’t know for certain, part of Fender’s debt could be a by-product of Weston Presidio’s involvement. Companies may seek out PE because they need cash to fund R&D, expand their product lines, or maybe the founder just wants to sell out and go fishing. But PE companies are rarely in it for the long haul, the desire to cash out at a profit in 3-5 years can place an enormous amount of stress on the company.

One last quick measurement of a company’s overall health is their revenue dollars per employee (Total Sales/Number of Employees). A good rule of thumb for both manufacturing and retail organizations is a number somewhere in the range of $300 – $400K. If it is a privately held company, the Revenue per Employee (RPE) number can be substantially lower as long as the major stake holders are in agreement on the definition of success. However if the company is publicly traded, Revenue per Employee — and more importantly Earnings per Share — are critical metrics. Publicly traded companies are all competing for investor dollars, and weak performance metrics makes it hard to attract investors and depresses the stock price. Using 2010 data, Fender’s RPE was $223K. Gibson’s is even more worrisome at $99K, while some Pro Audio companies like Harmon and Audio Technica are $331K and $556K respectively. Of course we are not taking margin into consideration. If you have very high margins you can be financially successful with a lower RPE (because you keep more of each dollar you earn). Still, a low RPE is not a good sign, and Fender’s 2011 net income of $19M strongly suggest that they have a problem with margins, debt, overhead, or some combination of the three.

WHAT DOES THE FUTURE HOLD FOR FENDER AS A PUBLIC COMPANY?

Fender has some strong assets: Good market share, tremendous brand recognition, famous artists that endorse their product, and two of the most classic guitar shapes in history. But it’s clear that they are not that financially healthy. It’s likely that conditions will improve as the economy continues to strengthen, but they have basic issues of profitability and long term debt. Weston Presidio likely wants to get out in the near future — at a profit — which means that the company needs to be attractive to investors so that people will want to buy stock. To compete for investor dollars Fender will have to demonstrate that they can increase their profitability: Lowering costs, raising prices, and/or reducing debt. Increasing sales will help too, provided that sales can be increased without increasing fixed costs. It’s that simple. People invest in company stock because they they think the value of the company will increase. The big question for music lovers is whether increasing shareholder value result in better product. All options are likely on the table: Outsource more products to low cost countries, use less expensive materials, raise prices, or sell off under performing brands (Guild, Charvel, Hamer, etc). Some Guitar-Loving White Knight could always come to rescue and infuse Fender with both cash and a love for the products and the company history. Or a group of demanding investors could force the company to implement severe cost cutting measures in order to improve profits and increase stock value. Unfortunately, the latter scenario is more likely, since if there was a White Knight with deep pockets, Fender would have not needed to go public in the first place. Let’s all hope for the best, but even for the optimists the prognosis is lukewarm.

Tags: Fender, guitar center, IPO, wall street
Posted in Guitars and Accessories, The Music Business | Comments Off

The Great American Guitar Show – Valley Forge PA, Day 2

November 15th, 2011

After a satisfying dinner at the Iron Hill Brewery in Phoenixville — which turned out to be a great non-mall dining hotspot — and some much needed rest, we were back at it on Sunday. The crowds on Sunday appeared to be just as good as the day before, with several repeat visitors. The Big Sale never materialized that day, but we were still turning people on to the ValveTrain amplifiers, JHS effects, and taking a couple G&L and Godin orders.

With it’s great tone and feel even at low volumes, the ValveTrain Trenton continued to be the most plugged into item in the booth. Many discovered that the amplifier was so perfectly voiced that flipping the “Raw” switch (which bypasses the tone stack) was the hot ticket. While the Blackface sound is the more often considered to be the Holy Grail of Fender sound, the warmer, bouncy, grainy sound of the Trenton made several Tweed converts.

However, for those looking for more punch and headroom, the Bennington Reverb had several fans in its corner. Louder and glassy with a faster attack, the Bennington was heralded by several experienced players as nailing the Best of Blackface. And will several Blackface amps on the floor that day, this was easy to verify.

The pedal that came between the guitar and amplifier most often was the JHS Charlie Brown. Honorable mention goes to the JHS Morning Glory but that sold so fast most people never heard it (note to self; bring more). With lower output pickups, the Charlie Brown elicited great on-the-edge breakup that just screamed Ronnie Earl or SRV. With a G&L ASAT or Godin Icon meatier distortions were available, but in either case they were articulate, natural and transparent. For this generally Blues/R&B oriented crowed, the combination of the Charlie Brown with the higher headroom Bennington was that “sound in your head” of grind, sweat and sparkle all at once.

The Great American Guitar show will visit the Philly area again next summer, and our plans are to stuff the Minivan to the gills again and make the trek down from Massachusetts. Where else can you get a ’55 Gold Top and a Felix the Cat Guitar all under one roof?

Tags: G&L, Godin, JHS, ValveTrain
Posted in The Music Business | Comments Off

The Great American Guitar Show – Valley Forge PA, Day 1

November 13th, 2011

We’re down here on the outskirts of Philadelphia for our first Great American Guitar Show in Valley Forge, PA. We came down Friday during the day in order to unload and get set up for the show on Saturday and Sunday.

While we have no way of actually knowing, there have got to be at least a couple thousand guitars here if not more. It’s surprising how much vintage stuff is on hand: Dozens of 50′s Les Pauls, 50′s and 60′s Strats, 50′s Teles, and enough vintage Les Paul Jr’s to make any Keith Urban fan jump for joy. I’m kind of LP Jr. Double Cutaway freak, and for between $4K and $9K I can have my pick of at least a dozen. The topper is a maple top burst 1960 Les Paul for $175K. Hmmm, house or guitar, house or guitar.

Action at the UpFront Guitars booth was pretty good, with a lot of people drawn to the Godin Icons, No-Top ASAT Special, and the ASAT Honeyburst Classic S. The Emerson pre-wired control assemblies were a popular item too, and of the pedals JHS drew the most attention. Our Clear Blue ASAT HB left the building, and I’ll eat my hat if somebody does not walk out with an Icon tomorrow.

Being a guitar show, most of the attention was focused on guitars, but the updated ValveTrain Trenton and Bennington amplifiers received many complements. The new Trenton with its larger cabinet, improved front end and tube rectifier was just stunning. Warm, sweet, with a nice bounce to each note, it was a real honey. It effortlessly developed great tone at low volumes, while the higher headroom Deluxe-inspired Bennington wanted to be opened up a little more than show decorum would permit. We’ll be taking a video on Sunday with the Trenton and our Angry Angus Tele. Michael from Cliff’s Guitars (Wilmington DE) is going to help us with the demo, as frankly after hearing him play we realized we should stick to selling.

Speaking of players, Joe Bonnamassa was also seen walking around the show, possibly looking for something to add to his already extensive collection.

If you are serious about guitars, and especially if you dig the vintage stuff, the Great American Guitar Show is a must-do.

Tags: Emerson Custom Guitars, G&L, Godin, Guitar Shows, Guitars, JHS, ValveTrain
Posted in The Music Business | Comments Off

The Southern Connecticut Guitar Show 10/30/2011

October 31st, 2011

We just got back from the Southern CT Guitar Show held this October 30th in Fairfield CT. This was the first time UpFront Guitars was at the show, and unfortunately it coincided with a freak winter storm that knocked out the power to over 500K residents. Needless to say turnout was a bit light, but kudos to the folks from the Fairfield Guitar Center (not that Guitar Center) who organized the show. As always, my brother Neil was their to help haul the gear, work with customers and assist them in trying out product. We had a lot of new G&L and Godin guitars on hand, but most of the emphasis and attention this show was on accessories such as pedals cables and pre-wired control assemblies. So while not a windfall, we met a lot of local musicians, guitarists, and an outstanding guitar maker that deserves special attention.

OTIS AND THE HURRICANES – On the performing side, local guitar hero Chris Cross (not that Chris Cross) stopped by to check out our gear. Chris fronts the blues/roots band with the great name of “Otis and the Hurricanes”. I don’t know Otis, but Chris is a really nice guy and fellow Tele fanatic. Chris bought one of our Tele pre-wired control assemblies made by Emerson Custom Guitars (emersoncustomguitars.com) and swore he was going to solder it in as soon as he got home. The deal on the Emerson Tele assembly (ASAT for you G&L people) is that is uses the “vintage” wiring arrangement used by Gibson in the 50′s and 60′s. In the vintage wiring arrangement the tone capacitor is wired between the volume and tone pot. This differs from most Fenders and modern Gibson guitars in which the tone capacitor just acts as a low pass filter to ground. In the vintage wiring arrangement the effect of the tone control is a function of where the volume control is set. While at first this may not sound beneficial, it opens up a much broader array of tonal options. With the volume all the way up, the tone pot works one way, roll the volume down a little and the tone pot acts differently, and so on. My Les Paul Jr. is wired this way, and I rarely play the guitar wide open. There are far better and more interesting tones to be found working both controls and finding that sweet spot.

In addition, the Emerson pre-wired assembly adds a “volume mod” that makes sure the highs don’t die out even when the volume control is turned way down. Essentially a little R/C (resistor/capacitor) network, the volume mod is a high pass filter that also bleeds through a small amount of full range signal regardless of the the volume control setting. In short, the high frequency roll off inherent with any volume pot is cured and clarity is retained even at low volumes. I’ve done this little trick to my own guitars for years, and for about a buck, Torres Engineering sells the “Famous Treble Bleed” which is essentially the same thing. If you’re buying a G&L from UpFront guitars and want a treble bleed, just say so.

DGN GUITARS – My brother has been telling me about Dan Neafsey and DGN Guitars (www.dgncustomguitars.com) for quite a while, sending me photos of his latest work, and generally gushing over his stuff. I got to meet Dan at the show, and besides being impressed by his easy-going modesty, I was also blown away by his guitars. Dan does everything: Carves the neck, does the frets, the entire finishing process, and even winds his own pickups. In his spare time he knocks out an amp or two. One of the cooler guitars on hand was his take on a double P-90 Singled Cut guitar that was actually semi hollow but no f-hole. Besides being very light for a mahogany guitar, the relatively low-wind DGN P-90′s had a crystal clarity and shimmer that was from another world. Plus with volume and tone controls for each pickup (wired the vintage way, see above) the tonal range was immense. With both pickups on, you can have a field day just exploring the nuances and interactions of various volume and tones settings.

As I mention earlier, I am a long time sucker for anything Tele-esque. Dan brought along a stunning baby blue T-guitar with his own P-90 and Tele bridge pickup mounted in a Joe Barden Tele bridge assembly. The back of the neck was a satin smooth figured maple, the rosewood fingerboard had expertly finished vintage frets, and the opaque blue finish was glassy but also clearly just enough. Plugged into one of our ValveTrain Trenton Amplifiers and the DGN Tele just poured forth with classically husky-but-clear neck tones, and the bridge pickup was twangy and sweet If it hadn’t just snowed it would have been Mint Juleps on the porch. So while I didn’t sell any guitars that day, the blue Tele came home with us.

If you haven’t guessed it by now, Dan really knows what he is doing. And if you don’t need a new custom built guitar, Dan also is capable of doing just about any type of guitar or stringed instrument repair. If you are not in the Fairfield Country area, it’s more than worth the hassle of shipping your prized possession to Dan.

Posted in The Music Business | Comments Off