Steinway Musical Properties, Inc.

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Steinway Musical Properties, Inc.

800 South Street
Waltham, Massachusetts 02154–1439
U.S.A.
(617) 894-9770
Fax: (617) 842-3395
Web site: http://www.g2g.com/steinway

Wholly Owned Subsidiary of Steinway Musical Instruments, Inc.
Founded: 1853 as Steinway & Sons
Employees: 1,000
Sales: $189.8 million (1995)
SICs: 3931 Musical Instruments

With a particular concentration on the production of concert grand pianos, Steinway Musical Properties, Inc. draws on a heritage of over 145 years in the painstaking business of piano manufacturing. Known for more than a century as Steinway & Sons, the company was founded by a family of German immigrants in the mid-19th century. Its innovations were key to the development of the modern acoustic piano, bringing the founding family prestige and prosperity. Factories in New York City and Hamburg, Germany, continue to create pianos in a highly labor-intensive process that remains largely unchanged since the early 20th century.

However, along with the rest of America’s piano makers, Steinway endured a long, relentless, and painful decline in demand from the 1920s to the present. In 1963, the largely family-owned business was acquired by Columbia Broadcasting System, Inc. (now CBS, Inc.). Steinway traded hands again in 1985, when it was sold to a private group of investors. A third change in ownership came in 1996, when the venerable piano maker was sold to a Los Angeles investment group: The Selmer Company, Inc. operated Steinway as an independent interest with over $100 million in sales.

Roots in 19th-Century Germany

The Steinway firm traces its history to a small hamlet in Germany where founder and patriarch Heinrich Steinweg is said to have made his first piano as a wedding gift for his bride. Although his early years in the trade have been shrouded in familial folklore, it is known that Heinrich also made organs, guitars and zithers. Son Carl (known as Charles in the United States) was the first to emigrate to America in the 1840s. Heinrich, his wife Julianne, three daughters and four other sons departed for New York City in May 1850.

Like many immigrants, the family soon anglicized their surname and some given names; Steinweg (literally “stone road”) became Steinway. Heinrich and his sons worked as apprentices with local piano manufacturers for about three years, building some pianos at home as well. They offered their first complete piano under the Steinway nameplate in 1853, and enjoyed virtually immediate success. To their initial retail outlet in New York City near Broadway they quickly added exclusive dealers in Baltimore, Maryland; Washington, D.C.; Louisville, Kentucky; and Savannah, Georgia. By 1856, when William formally joined his father and brothers Henry Jr. and Charles in the family enterprise, it had grown so fast the Steinways no longer had to work on the shop floor. All had advanced to managerial positions.

Development of the Modern Piano

The Steinways were quick to adopt technological innovations to the still-evolving instrument, a strategy that proved key to the company’s early success. While there is no doubt that they possessed creative genius—Steinway & Sons accumulated over 50 patents from 1850 to 1890 alone—their particular aptitude was in adopting and combining others’ breakthroughs. The earliest advances have been credited to Henry Jr., but when both he and brother Charles died in the spring of 1865, the family summoned Heinrich’s youngest son, C. F. Theodore, from Germany, where he had been operating a struggling piano factory. Another son, Albert, also joined the firm as a minority partner at this time.

By all accounts a failure in his homeland, Theodore reluctantly came into his own in the United States. He originated the majority of the patented designs used in what came to be known as “the Steinway method” of piano building. Hallmarks of the design included the use of a one-piece iron frame to accommodate the extremely high tension of the piano wires, over-stringing of the bass wires for increased sound, and improvements in the power and responsiveness of the “action,” the mechanism that connects the keys to the hammer that strikes the string. As family chronicler D. W. Fostle emphasized in his 1995 book, The Steinway Saga, “The design pioneered and popularized by the Steinways became the preferred way to build a piano and ultimately the only way.” This highly labor-intensive process, involving over 12,000 moving parts and nearly as many painstaking steps, would continue to be used throughout the 20th century.

A steady stream of awards and commendations beginning in 1857 helped catapult sales from 12 units in 1853 to 400 in 1857, when the Steinways formalized their family partnership. By the end of the Civil War, Steinway & Sons had become the world’s largest piano manufacturer, with more than 400 employees, $ 1 million in sales, and production of over 2,300 pianos per year. Unlike some of its largest competitors, Steinway did not reach this pinnacle by appealing to the market’s lowest common denominator. In fact, its line included some of the world’s most expensive instruments.

Second Generation of Leadership in the Late 1800s

While technical considerations as well as impeccable craftsmanship formed the core of Steinway’s success, promotion also contributed greatly to the company’s prosperity. Heinrich’s son William proved the marketing genius of the family, guiding advertising and all manner of promotions. D. W. Fostle summarized the corporate strategy as “prizes plus prestigious players plus patents equal high prices.” The firm opened Steinway Hall, its first concert hall, in New York City in 1867. This musical and cultural forum, which featured a Steinway show-room, was just one factor in the public perception of the Steinway as the premier concert piano. The company also sponsored well-known European artists on tours throughout the United States. As Fostle posited, William ensured that “from its earliest years the pianos of Steinway were conjoined with musical refinement and high aesthetic purpose.”

William succeeded his father as president of the company upon the latter’s death in 1871. His first decade at the helm proved difficult, given the onset of the country’s longest economic depression in 1873. In order to survive the downturn, which lasted into 1879, Steinway cut prices and wages. Squabbling within the family also made this a difficult period for the company, but as the economy recovered, William began to expand the family interests. He bought 400 acres in Astoria, Queens, and built a factory, foundry, schools, a library, and a public bath. In 1880, William guided the establishment of a piano works in Hamburg, Germany. Production at this branch of the family enterprise would continue—albeit with interruptions—throughout the 20th century. William’s reign peaked in 1891, when company wide sales totaled more than 3,000 pianos, and profits amounted to 30 percent of total dollar volume. Unbeknownst to his relatives and heirs, however, William died in 1896 bankrupt from dubious investments.

With sales declining to less than 2,000 units and the specter of William’s insolvency hanging over the company in 1897, William’s successor and nephew Charles (son of the elder Charles) tried to sell the struggling family firm to a group of British investors. The new president kept the family firm alive by slashing the prices of its top-line pianos and introducing lower-priced models in the early 1900s, nearly doubling sales by 1906. Three years later, when nationwide piano sales hit an all-time high of over 365,500 units, Steinway’s own unit sales had recovered to 3,700 per year. However, industry consolidation and anti-German sentiment during the World War I years shrank Steinway’s market share from 3.7 percent in 1909 to less than 1.5 percent by 1919.

Advertising Buoys Sales in 1920s

When Charles died that year, his brother Frederick T. Steinway took the helm. Although he had spent the previous 30 years directing manufacturing, Frederick’s true forte would prove to be in another area. The new president had his work cut out for him; Steinway and all the world’s piano manufacturers faced what D. W. Fostle called “the four horsemen of the piano apocalypse: radio, depression, world war and television.” The impact of radios alone diminished industrywide production from 348,000 in 1923 to 131,000 in 1929.

Fred successfully fought this battle by broadening Steinway’s advertising presence from trade magazines to general publications. The strategy, which increased the company’s ad budget to the heretofore unheard of level of nine percent of sales, brought a counter-cyclical increase in unit sales from 4,100 in 1921 to 6,300 by 1926. Fred also dramatically expanded the company’s longstanding artist support system whereby Steinway supplied pianos and tuners for concert appearances without charge. This system endured, albeit in a much more limited form, throughout the remainder of the century, helping to equate the Steinway nameplate with professional musicianship in the public mind.

Company Perspectives:

The Steinway & Sons piano company, in Astoria, Queens, is proud of the fact that 95 percent of piano soloists performing with major symphony orchestras choose to perform on Steinway pianos. One of the reasons is because Steinway & Sons still does a lot of things the old-fashioned way, such as cutting, bending, shaping and gluing the fine woods from which Steinway instruments are made, by hand, following a process developed and patented by the company over the past 143 years.

During this prosperous period, Fred fortuitously accumulated a multimillion dollar surplus account. It would prove to be a prime factor in Steinway’s ability to endure the economic holocaust of the 1930s. Fred, however, would not witness this decline; when he died from a stroke in 1927, he was succeeded by William’s son Theodore E. Steinway. His was not a happy tenure. The Depression further battered the piano industry, eliminating nearly two-thirds of the companies that had survived radio’s onslaught. With thousands of warehoused pianos and no buyers, Steinway factories shut down for 20 months in the early 1930s. Theodore cut salaries across the board; executives (most of them family members) took the biggest cuts, at 66 percent. The surplus account lasted long enough for Steinway to launch its first baby grand in 1936. The company also resumed the manufacture of uprights two years later. Although Rothstein, writing for Smithsonian magazine, attributed the company’s survival to “the integrity of the instrument,” Theodore was willing to sacrifice some of that integrity for the sake of survival. For example, Steinway tried to make bargain-priced pianos in the late 1930s, but while output increased almost fourfold from 1935 to 1939, the company struggled to make a profit. Steinway even adopted an “if you can’t beat ‘em, join ‘em” strategy, selling radios, records and record players out of Steinway Hall.

Even World War II couldn’t pull the company out of its doldrums. Steinway only recorded profits in four of the 16 years from 1930 to 1945. Unlike some firms that benefitted from defense contracting, the piano company struggled to adapt to the new economic imperative. Steinway first applied its wood-working skills to the production of parts for Army gliders. Later in the conflict, it entered the rather morbid production of caskets. Despite a major campaign to honor the company’s centenary, Steinway & Sons continued to struggle into the 1950s. The work week was cut in half at the end of 1953, and plants were shut down entirely for five weeks in 1954. Theodore Steinway resigned the presidency in 1955 and died two years later. He was succeeded by his son, Henry Z. Steinway.

Last Generation of Family Management in 1960s and 1970s

The new leader quickly recognized Steinway’s immediate problems—a lack of skilled labor and an aging physical plant—and set out to rectify them. He sold off Steinway Hall and other parcels of real estate in order to raise funds for production, which he consolidated at a single plant. The new leader made considerable headway during his tenure, chalking up production increases of over ten percent in 1959 and 1960 and increasing Steinway & Sons’ share of grand piano sales to 28 percent by 1963.

However, the 1960s brought new threats to the piano industry overall and Steinway in particular. Foremost among these was the penetration of imports into the domestic market. Led by Japan’s Yamaha, imports of grand pianos grew from nil in 1960 to nearly 50 percent in 1969. Furthermore, the industry faced a continued population decline, which eroded its chief market, school age children. Budget cuts at schools and rising interest rates only exacerbated the problem.

Henry Z. sold the family firm via an exchange of shares to CBS, Inc. in 1972. Although the stock was never listed, it had started trading in the 1920s. Outside investors as well as some family factions had been clamoring for a sale for some time, and the company had in fact entertained more than 24 offers between 1955 and 1968. At the time, the broadcast television company seemed a logical parent for the piano maker. CBS CEO William Paley had already acquired several musical instrument companies and appeared dedicated to their care, but corporate ownership brought its own ills: bureaucracy, repeated reorganizations, and high management turnover. Moreover, Steinway was merely a tiny fraction of its overall operations. After Henry Z. was “promoted” to chairman—an empty title, in this case—in 1977, the company operated under three more presidents in less than a decade. Production declined from over 5,400 in 1976 to less than 4,400 by 1982.

A Second Corporate Parent Adopts Steinway in Mid-1980s

In 1985, CBS sold Steinway to a Boston investment group that included brothers Robert and John Birmingham. The new owners approached the enterprise as strictly a manufacturing business, sometimes even slandering the storied past upon which Steinway’s reputation was based. This new attitude raised fears, sometimes well founded, that the venerable piano and its quality would be corrupted. Writing for the New Republic in 1989, Edward Rothstein called their strategy “a philosophy entirely alien to a century of piano invention and craft,” but in fact, with the support of a new marketing program, Steinway sold more grand pianos in North America from 1986 to 1991 than it had in the previous fifty years. In the early 1990s, the company supplemented its revenues with a reconditioning division. By this time, the number of Steinways that were rebuilt nationwide far surpassed the number of new Steinways produced.

An early 1990s recession diminished sales from $98.8 mil-lion in 1991 to $89.2 million in 1992, and the company suffered back-to-back losses totaling over $13 million in 1992 and 1993. Revenues increased over $100 million in 1994, when the piano-maker earned a $3.1 million profit.

Steinway Joins Selmer Musical Family in 1995

In 1995, an investment group owned by Kyle Kirkland and Dana Messina commenced acquisition of Steinway Musical Properties for over $100 million and merged it with The Selmer Company, Inc., a manufacturer of wind and percussion instruments that they had acquired two years earlier. In 1996, they sold 16 percent of the new holding company, Steinway Musical Instruments, Inc. to the public. They planned to use the estimated $60 million proceeds for debt reduction and capacity increases. Although the two subsidiaries were very similar in that they employed highly labor-intensive production methods and operated in a mature market, they were operated as distinct entities. The new owners hoped to increase Steinway’s domestic market share via institutional sales, boost overseas sales via the German subsidiary, and improve manufacturing efficiency.

With combined total sales of over $230 million, Steinway and Selmer constituted the musical instrument industry’s largest company.