I watched that a couple of years ago. I have never been able to look at a Steinway the same way since. The skill those workers have developed is impressive and inspiring.
I spent a good 6 months restoring a Bosendorfer (competitor to Steinway, no umlaut here, sorry), even just repairing a grand piano is a lot of work. Making one from wood, iron, brass, steel, velvet, felt and shellac is an enormous amount of work. Those instruments are worth their sticker price, the brand really is a measure of quality.
The one I did had it's strings cut out, the outside was sanded down to wood, bits and pieces were strewn all over Poland. I got to know an expert piano repairman/tuner from the local conservatory and he gave me a mountain of tips&tricks to work off, without that I would have never managed the job. That was a fun project. And not just a little bit dangerous, tuning up a fair sized piano from scratch is a delicate job. You really don't want to unevenly stress the frame and find out what it is like when 13 tonnes of tension is released all at once.
From it I remember a guy who goes to Tacoma a few times a year to look at Sitka spruce really carefully, another who guards their hand planes, which they can't get anymore, stuff like that. I also have a friend who's a concert pianist and who's quite obsessive about tuning, voicing, regulation, and her (Model C?) sounds absolutely amazing.
... decided to split the business in two. Sell off the non-piano instrument division and keep the piano business public. Now the piano business is expected to go private. That implies that the value of the sum-of-the-parts is less than the value of both businesses running independently. Why? Well, for starters it seems there isn't that much public investor understanding of how this company works, its market, etc, and a good indication is that only one equity analyst (of a not that well known broker) covers the stock.
Additionally, the reporter says the the real estate where the office/factory is, is extremely valuable (implying that such asset isn't priced in correctly in the value of the stock - god knows the book value of the land/real estate, a market sale can generate a considerable one-off dividend).
My warning bells went off when the article mentioned the real estate value.
I'm predicting someone will scoop up the company, develop the real estate, and attempt to relocate the entire company to a new cheaper facility somewhere nearby. But Steinway will most likely lose something special in the process of moving either through attrition or morale or just plain ol' disrupting the assembly line and the company will never be the same afterward.
I was reminded of the story of the Vienna Sausage factory in Chicago, our most famous brand of Chicago hot dogs. They moved to a new facility and instantly had a quality problem with their hot dogs. Luckily, it was tracked down:
"The reason, which they only figured out while chatting about the old days, was Irving who didn’t make the move to the new plant, but who had wheeled the hot dogs from the manufacutring room to the smoke house. The thing was that this took a while and served as a cooling period because it took 30 minutes to do the walk through the twisting factory. There was no Irving at the new plant – there was no need – and it was Irving’s trip was the secret ingredient. So they built a new room to leave them in and cool and that new addition was to recreate teh effect of Irvings walk."[1]
The background missing is that the company was private before, changed owners a couple times, and was only taken public in the 90's. The CEO and the chairman of the company held a controlling interest, even while it was public, until, in 2011, they were persuaded to sell some. After that, they left (or were forced to?), and new management was installed.
I worked for them during this transition after they acquired an iPad app I made (http://etudeapp.com).
So where's the reason? It mentions the real estate, but not its value. They mention spinning off the band instruments, but what exactly does that accomplish?
This brings up an interesting question: if Steinway were liquidated, would the patents be up for sale?
It is my understanding that much of their unique quality comes from over 100 patents, many of which are over 100 years old [1].
Presumably a competitor could buy the patents and make significant improvements to their design.
Part of the Steinway brand is built on tremendous marketing savvy, generation after generation. But the technology remains unparalleled. As a professional pianist, I wouldn't use anything else for a recording.
Don't get me wrong, I would love for Yamaha, Fazioli or the others to make the market more competitive. But nothing compares to a Steinway in terms of sound quality and balance throughout the registers.
All the first-class piano technicians I know agree.
Edit: IvyMike and ryanhuff brought my attention to the 20 year maximum term of patent. It is surprising that Steinway's competitors still are unable to match the quality of sound. Perhaps their technicians are better?
> Edit: IvyMike and ryanhuff brought my attention to the 20 year maximum term of patent. It is surprising that Steinway's competitors still are unable to match the quality of sound.
Not necessarily. Patents only need to describe enough to be enforceable, they don't have to include any of the subtle details which are necessary to make things tick. A famous example of this was all the patents filed by the famous German pharmaceutical & chemical giants in the USA to protect their cutting-edge processes: the patents worked very well to protect their IP, and then WWI came and the salivating competitors got the German patents seized - and couldn't figure out how to do the things, because the patents had left out critical details.
Since the article didn't answer their own question, I'll offer up my own guesses based on what the article said. Keep in mind that I have very little respect for hedge fund managers, so that may taint my opinion.
Two sentences stick out:
"There's a devoted factory workforce where you still count as a "new guy" after 16 years."
and
"[at Steinway] the person who does that has been trained for ten years."
If I'm a person looking just at squeezing every last drop of money out of a company, long-term consequences be damned, this is the very first thing to ditch. If you're still a new guy after 16 years, you're an expensive new guy. Let's hire someone who costs, say, 50% and does the work 60% as good as the older worker. Cut costs, and hope that you can keep revenues high for awhile and bring costs down. Then shortly you have a multi-billion dollar company that you paid $500M for. Then, like any "good" hedge fund guy, sell and ditch it before you have to deal with any long-term consequences.
Steinway's business depends on the mystique and skillset. These are not joannas they are selling, and it is a very analogue product. 60% as good as they are now would be worse than a Chinese mass produced baby grand voiced by your local tuner. Not the target market, a few scales in the showroom and you have lost them.
I accept that (say) a chocolate manufacturer or people who make network cards, or even hifi components, your strategy might work.
Here are some interesting things. The majority of the piano sales are imports from overseas. Boston and Essex brands. When you subtract the pianos sold to schools, sales of expensive American pianos are not so good. If its a private company you can hide that.
23 comments
[ 6.8 ms ] story [ 52.1 ms ] threadThe process really is amazing.
The one I did had it's strings cut out, the outside was sanded down to wood, bits and pieces were strewn all over Poland. I got to know an expert piano repairman/tuner from the local conservatory and he gave me a mountain of tips&tricks to work off, without that I would have never managed the job. That was a fun project. And not just a little bit dangerous, tuning up a fair sized piano from scratch is a delicate job. You really don't want to unevenly stress the frame and find out what it is like when 13 tonnes of tension is released all at once.
There are clips on youtube.
From it I remember a guy who goes to Tacoma a few times a year to look at Sitka spruce really carefully, another who guards their hand planes, which they can't get anymore, stuff like that. I also have a friend who's a concert pianist and who's quite obsessive about tuning, voicing, regulation, and her (Model C?) sounds absolutely amazing.
Additionally, the reporter says the the real estate where the office/factory is, is extremely valuable (implying that such asset isn't priced in correctly in the value of the stock - god knows the book value of the land/real estate, a market sale can generate a considerable one-off dividend).
I'm predicting someone will scoop up the company, develop the real estate, and attempt to relocate the entire company to a new cheaper facility somewhere nearby. But Steinway will most likely lose something special in the process of moving either through attrition or morale or just plain ol' disrupting the assembly line and the company will never be the same afterward.
I was reminded of the story of the Vienna Sausage factory in Chicago, our most famous brand of Chicago hot dogs. They moved to a new facility and instantly had a quality problem with their hot dogs. Luckily, it was tracked down:
"The reason, which they only figured out while chatting about the old days, was Irving who didn’t make the move to the new plant, but who had wheeled the hot dogs from the manufacutring room to the smoke house. The thing was that this took a while and served as a cooling period because it took 30 minutes to do the walk through the twisting factory. There was no Irving at the new plant – there was no need – and it was Irving’s trip was the secret ingredient. So they built a new room to leave them in and cool and that new addition was to recreate teh effect of Irvings walk."[1]
[1]: http://inreblog.com/2008/12/19/in-re-irving-the-secret-ingre...
I worked for them during this transition after they acquired an iPad app I made (http://etudeapp.com).
It is my understanding that much of their unique quality comes from over 100 patents, many of which are over 100 years old [1].
Presumably a competitor could buy the patents and make significant improvements to their design.
Part of the Steinway brand is built on tremendous marketing savvy, generation after generation. But the technology remains unparalleled. As a professional pianist, I wouldn't use anything else for a recording.
Don't get me wrong, I would love for Yamaha, Fazioli or the others to make the market more competitive. But nothing compares to a Steinway in terms of sound quality and balance throughout the registers.
All the first-class piano technicians I know agree.
[1] http://www.ilovesteinway.com/steinway/parts/steinway_patents...
Edit: IvyMike and ryanhuff brought my attention to the 20 year maximum term of patent. It is surprising that Steinway's competitors still are unable to match the quality of sound. Perhaps their technicians are better?
Isn't the maximum "term of patent" 20 years or less?
https://en.wikipedia.org/wiki/Term_of_patent
Not necessarily. Patents only need to describe enough to be enforceable, they don't have to include any of the subtle details which are necessary to make things tick. A famous example of this was all the patents filed by the famous German pharmaceutical & chemical giants in the USA to protect their cutting-edge processes: the patents worked very well to protect their IP, and then WWI came and the salivating competitors got the German patents seized - and couldn't figure out how to do the things, because the patents had left out critical details.
Two sentences stick out: "There's a devoted factory workforce where you still count as a "new guy" after 16 years."
and
"[at Steinway] the person who does that has been trained for ten years."
If I'm a person looking just at squeezing every last drop of money out of a company, long-term consequences be damned, this is the very first thing to ditch. If you're still a new guy after 16 years, you're an expensive new guy. Let's hire someone who costs, say, 50% and does the work 60% as good as the older worker. Cut costs, and hope that you can keep revenues high for awhile and bring costs down. Then shortly you have a multi-billion dollar company that you paid $500M for. Then, like any "good" hedge fund guy, sell and ditch it before you have to deal with any long-term consequences.
I accept that (say) a chocolate manufacturer or people who make network cards, or even hifi components, your strategy might work.