Klaus Heymann: A 20th-Anniversary Chat with the Founder of Naxos Page 2

JVS: Let's talk about sound quality. I am finally posting clips from my whistling CD to my website, and spent some time listening to the sound. Even through my old, poor powered computer speakers, I could easily hear the difference between WAV files, MP3 at 320kbps, and MP3 at 192kbps. The smaller files really truncate my sound, rendering it much thinner, brighter, and lacking in overtones. If people are downloading clips that are less than 192kbps, they're hearing only a fraction of what was initially recorded. Have you considered posting lossless files and streaming at higher rates?

KH: Of course. Basically, we've thought of everything [chuckles], because I'm in the business of thinking about what might happen in the future. I also come from a hi-fi background. In an earlier life, I built high-quality recording studios and sound-reinforcement systems. For many years, I was a distributor of Bose audio equipment in Hong Kong and China.

JVS: Oh my God. You realize that when you mention Bose, a number of audiophiles are holding up a cross to protect themselves.

KH: Yes, yes. Look, I beg to differ. I'm not an audiophile in a sense that I have these big, huge speakers with the ultimate bass response and everything. But I like good sound. Whatever people may think, Bose does deliver good sound. Certainly it delivers much better sound than most people are used to.

I hooked up my Naxos Music Library with a special computer and a special soundcard, which is quite important to my home-theater hi-fi system. At 128kbps, it sounds pretty damn good. Most people who come to the house don't know that I'm not playing CDs. Of course, especially since I'm married to a violinist who has very acute hearing, we can hear that the high frequencies are missing and it doesn't have a lot of depth.

But this is only a temporary situation. Don't forget that a lot of countries don't have the kind of broadband that you need to listen to lossless files. We are ready to post lossless. Our first batch of 200 to 300 titles that we think can most benefit from lossless format is ready to go.

Have you tried our ClassicsOnline.com site? We'll have 300 titles available in FLAC lossless before the end of March 2008. FLAC is smaller than WAV—about 50%. However, the more complex the audio, the less compression there is (footnote 4).

We can also sell WAV files. But the files are so huge that not many people can download them smoothly. In some places in the US, and probably in Korea and Japan and Taiwan and Hong Kong, which are very much ahead of the rest of the world in terms of infrastructure, it's possible. But where else? Try to download a Mahler symphony as a WAV file in Germany. You have to make the calculations. It's an enormous amount of data that we are dealing with. You have to look at the cost of server space, and the need for substantial and flexible bandwidth. If 10 people try to download the Mahler symphony at the same time, you need an enormous pipe to make that happen. And it's not going to be a very good business, because while people are not willing to pay more for a WAV file than for a physical CD, the cost of making the WAV file of a Mahler symphony available is probably greater than the cost of manufacturing an actual CD. There are benefits of selling a WAV file over a physical CD—we don't have to carry inventory, we get paid right away, there are no returns—but it's not good business.

FLAC lossless is another issue. You can probably make pretty good money selling those files for less than a physical CD, which is what we want to do. So there will be lossless files available from ClassicsOnline.com and other sites. We're even ready to go to WAV files as well, but we haven't figured out how to make money from them.

JVS: Although you've stopped selling SACD and DVD-Audio releases, you're still recording in surround sound. Do you see Naxos releasing titles in high-resolution surround formats in the future?

KH: We record all choral and orchestral releases in surround. This means we create 40 to 60 new surround recordings a year, which we save for the day when we have a really good medium for them. I think SACD was never meant to be a surround medium; it was designed as an upmarket stereo medium, with surround capability added as an afterthought. Technically, DVD-A is a much superior format because of the amount of data it can carry. You also have longer playing times.

Unfortunately, DVD-Audio never took off, and SACD is dying. Even though smaller companies still sell SACDs, they're hybrids. People buy hybrid SACDs because that's the only format available to them, and they mainly play the normal CD-quality stereo layer. We actually have the market data.

For two or three years, we released all our big-budget productions in all three formats: CD, DVD-A, and SACD. When we sold DVD-A and SACD at a higher price, people only bought the CD. If people today had to pay a premium for SACD, they wouldn't buy it. That's why we're currently trying to recoup our manufacturing costs by selling all our remaining SACD and DVD-A titles for the same low price as our regular CDs.

JVS: HD DVD and Blu-ray can support higher-resolution data.

KH: And that's what we're going for. We're waiting until HD DVD and/or Blu-ray have good market penetration, then we'll release all our surround recordings in that format. You can have AC-3, discrete surround, encoded surround, stereo, and video all on the same carrier, manufactured at a price no greater than the price of manufacturing either SACD or DVD-A.

JVS: When you founded Naxos, did you envision it expanding to such an extent?

KH: Absolutely not. When I started, all I was trying to do was sell a CD at the price of an LP. It was a marketing idea for the Hong Kong and Southeast Asian markets. I never imagined we'd become a powerhouse, with 300 employees worldwide, and 60 programmers and systems analysts in our Information Technology department. We're the only record company in the world with our own digital platforms. We have our own download and streaming sites, handle digital distribution for some of the labels we distribute physically, and also have books, audio books, and educational materials.

For me, being in classical music has always been a lifestyle decision. For years, we didn't make any money. I've invested an enormous amount of money—$80 million US—in the entire catalog and range of products, and never had a normal return until, thanks to the advent of digital platforms, I made a decent return last year. I'm extremely happy. I'm doing what I love, and I'll finally make some money from it.

Footnote 4: Some Naxos titles are now available at MusicGiants.com in WMA lossless format. Also available (or soon to be) as Super HD 5.1-channel surround downloads are titles from the Dutch SACD label Pentatone. The MusicGiants.com downloads are calimed to be free of Digital Rights Management (DRM).