Klaus Heymann: A Naxos World

Is it because no one takes pot shots at you unless you're on top? Or are the most recent criticisms of Klaus Heymann and his diversified Naxos Digital Services empire on to something more?

To refresh: Heymann, a German entrepreneur who began selling cameras and stereos to American GIs in Vietnam, and later become the Hong Kong distributor of Bose and Studer audio gear, launched Naxos, a classical-music label specializing in budget-priced CDs, in 1987 (footnote 1). The label's name is also easy to pronounce in any language. Heymann began to build the Naxos catalog—now one of the largest classical labels—by recording young and often unknown artists and orchestras, most from Eastern and Central Europe. Soon, displays of Naxos CDs, all of their covers conforming to a uniform, instantly recognizable design, became to crop up in record stores large and small.

Jokes about hearing Beethoven played by the Pottsylvania Radio Orchestra began to circulate among competitors and fans alike. From the very beginning, a more potent argument about whether these bargain recordings would degrade the standards of young classical listeners: Would hearing Beethoven for the first time as played by a second-rate orchestra dilute the ability of beginning listeners to discern merely good from truly great performances? Then again, at least people were listening.

The latest controversy to swirl around Naxos concerns their decision to strike a deal with the streaming service Pandora directly rather than through SoundExchange, the independent digital performance rights organization. In an era when the streaming of recordings is fast draining away what little money remains in the music business, suspicions immediately arose that something nefarious was afoot.

In the March 24, 2015, issue of Billboard, Ray Hair, president of the American Federation of Musicians, responded to the Naxos/Pandora deal:

"Members of the . . . (AFM) continue to be deeply concerned about greed and profiteering in the music industry, at the expense of those who create music. Professional musicians deserve to be treated better. We make all the music, but it seems like everyone else makes all the money.

"We are alarmed by the agreement recently reached between Pandora and Naxos, the world's leading classical music label, on a multi-year US license for the entire Naxos catalog. We were concerned when their joint announcement was notably silent on any mention of fair and direct payment of royalties to artists."

Heymann responded in a letter that Billboard chose not to publish. That response read, in part:

"Since its foundation more than 25 years ago the mission of Naxos has been to make classical music accessible and affordable. More than any other record company, Naxos has invested in music education and in recording a wider range of repertoire than any other company, major or independent. At the same time, Naxos has promoted many new and young artists and performing arts groups. Its catalogue of American classical music is second to none, built at substantial cost over time.

"It is both absurd and offensive for AFM President Ray Hair to insinuate in his recent Billboard op-ed that Naxos was motivated by greed and profiteering in its recent deal with Pandora. Writing these comments without any attempt to contact Naxos is irresponsible and reckless, and does not serve musicians well.

"Naxos remains committed to its artists and is committed to ensuring that all amounts owed for plays on Pandora are reported and paid to them in a timely and concise manner. This deal was done for the benefit of musicians worldwide."

Recently, I met Heymann in midtown Manhattan, at the Parker Meridien Hotel, the day after he'd received the Sanford Medal from the Yale School of Music.

"I've looked at all the people [who received the medal] before and they're all eminent or almost eminent musicians."

Dressed in a gray zip-up vest, black shirt and pants, and new, hipsteresque, low-top tennis shoes, Heymann, with his healthy gray mane and busy activity level, does not look his 76 years. Famed for being a hardnosed wheeler-dealer with a head for figures and being good at sniffing out future trends in the music business, Heymann is clearly proud that he was into streaming before streaming was cool, or even a glint in the music biz's eye. The back of his business card lists the eight websites, seven of them streaming-based, that Naxos has launched since the late 1990s.

"In 1996, we made our whole catalog available for streaming. It was the very first in the history of the industry. But at that time, it was not paid. It was a marketing tool. The idea was, people listen online, track by track, low fidelity, go to the shop, and buy the CD. It was very expensive, because bandwidth was extremely expensive in '96.

"It remained that until 2002—until bandwidth costs had come down. Also, there were a lot more people with access to the Internet, and that's where we launched the www.NaxosMusicLibrary.com. It was $9.95 a month. That was the first paid streaming service. There was something else before, but it was not from the industry. It was from outside, Classical.com or something. That sort of faded away.

"In 2004, we launched the radio (www.NaxosRadio.com). Way before Internet radio, we had 80 pre-programmed channels. If you want to spend your time listening to guitar and lute, you get the guitar and lute channel. If you like Strauss, there's a Strauss channel. That was paid ($20 a year), but every user who hangs on it uses one stream of our bandwidth. And the people who subscribe, they turn it on in the morning, 9 o'clock, when they get to the office, [and] they turn it off 6 o'clock, when they leave the office. That uses a lot of bandwidth. We never figured out how to make it commercially viable, so it got neglected. Now that bandwidth has become cheaper, we'll probably revive it. We actually hired a radio personality to run it.

"Then we have the video library [www.NaxosVideoLibrary.com] which came in, I think, in 2006. Jazz [www.NaxosMusicLibrary.com/jazz] came in 2005. Then we built our download site, ClassicsOnline.com, which we've now revamped into www.ClassicsOnlineHD.com, with both streaming and downloads.

"There is nothing nefarious [in the Pandora deal]. We own those rights anyway. We have all the rights from our artists. Our contracts with the artists say we have all rights: all rights in perpetuity in whatever format, now known or unknown, from day one. So it's not that we're not paying the artists—the artists are not entitled to any payment from us. Those are the deals in classical music, and most labels are the same.

"We go to the artists and say, 'Look, there are millions sitting there that hasn't been paid. You give us the power of attorney, and we collect your half, and then pay you a share of that in exchange for doing the work.' Because the societies also want to have—it's very onerous what they want. They want an ISRC [International Standard Recording Code] supplied, and artists cannot supply ISRCs so they don't get paid. So now we go with our databases and say, 'Here's the database, here's the power of attorney, now you pay us.'"

But for consumers—not musicians—the central question about streaming concerns not money but formats. Will streaming eventually kill off all forms of physical media and render record collecting obsolete—that is, owning a personal library of music recordings, be it physical or digital, in a house or in the cloud?

"There are so many ways now to listen to music, and unfortunately a lot of it is free. Streaming takes away from downloads and from physical. There's no doubt—just look at the numbers. I looked at the latest figures, and Spotify pays, I think, less than 1õ per track. Naxos Music Library pays 4.5¢ per track. It's the highest. Qobuz is next to Naxos. YouTube pays the worst.

"In 2013, I think Naxos had five titles that sold more than 10,000 [physical] copies. In 2014, not a single one sold more than 10,000. Our best-selling title sold 7000. That shows a dramatic drop in one year.

"[The CD is] not going to die. Even five years from now, we'll be making CDs, but it's going to be in smaller and smaller quantities. Anything where you sell less than 1000 copies does not really recoup the investment of manufacturing, booklets, all that. So if sales continue to drop, and more titles reach that point where you cannot sell at least 1000 or 1500, then it's going to be digital and CD on demand. But 10% of the titles, five years from now, will still sell 3000, 4000, 5000 [physical] copies.

"I think what will probably happen is that, increasingly, we will release only new recordings digitally [downloads]. And we're moving towards manufacturing on demand for those digital-only recordings. We just bought the on-demand manufacturing facility of ArkivMusic, and that will be shifted to Nashville.

"Right now, digital only is about 25% of all our releases. I think, over the next two or three years, it will probably move to 50%. Five years from now, maybe 75%. What we may see happen in between is that there may be a new high-definition physical format becoming accepted. Maybe data disc, where you can sell high-definition files?"

Throughout our conversation, I never heard Heymann utter the words listen in regard to a specific format. I asked him how he listens to music.

"Online. Naxos Music Library, ClassicsOnlineHD. I still have all my wife's CDs at home, because she says she's not an online person. But that's all. I still listen to CDs for new artists, new recordings, but . . ."

With physical formats stuck or stalling, and with music of every variety becoming a less important cultural experience for millennials and younger—not to mention that we live at a time when a few hundred in unit sales will land you halfway up the Billboard classical charts—the question is obvious: Does the entire business that accompanies the playing and recording of classical music have a future, in this or any other country?

"Ninety percent of what we record now loses money, if I count only the revenue from selling CDs and downloads. We make money because [of] this huge back catalog [and] the labels we bought, and we make money from providing services to other people: digital and physical distribution. I think the physical [distribution] is also not profitable anymore, but the digital [downloads] is linked to that, and that makes money. The music library is profitable. The video library is not. Jazz is breaking even. The radio, probably breaking even.

"But it's not dying. The streaming income in the first quarter of this year more than made up for the loss of the download income, but hasn't made up for the loss in CD sales. That means a lot more music is consumed, but we get less money for it.

"But at the same time, you reach a lot more people. I just looked at the latest figures we made, and I think last year our digital income was almost $5 million US, excluding CD sales. That's from iTunes, Pandora, Amazon, from whatever. What does that mean? We can close the warehouses tomorrow, destroy all the CDs, close down most of the offices, and [still] have a very good business. But that's us—because we have this huge catalog. It's all available online and is properly exploited. We are running our own platforms. Not many can do that.

"I'm not worried [about classical music] because, look: The classical record business in the United States is about a $100-million-a-year business. The classical music business in the United States is about a $5-billion-a-year business, if you consider [the] Metropolitan Opera budget, ballet budget, orchestras' budgets, and the music schools, etc. We are only [a] tiny little appendix to this whole, and that will never go away. It may shrink from $5 billion to $4.5 to $4 billion, but it will still be there.

"Classical in the US, it was always between 3% and 4% of the total record business. It's shrunk in line with the rest of the business. In Europe, in the best times, it was 10% of the total record business. And I think right now it's 5%, maybe 6%, depending on the market; Germany, maybe England, a little bit higher.

"And streaming in Europe is still not such a big business, except in Scandinavia. In England, classical-music streaming is probably 1% or 2%. I'm not concerned about the classical-music business as a whole. The record business has to survive the next five years, until there's a business model that works. The present business model does not work. The artists don't get paid. Even with the artists not being paid, the record companies still don't make money. That's not a business. And what you get for the music is not enough.

"In the past, we've said we compete with Universal, EMI, and we worry about them. Now we worry about what Google is going to do next, what Amazon is going to do next, what Apple is going to do next. They are the giants. And, frankly, this new development about exclusive content, we had that in the old days, before iTunes, when Warner had this exclusive . . . it's not going to work. Apple can buy Warner tomorrow. Google can buy Sony. It's pocket money for them. What happens then would be an interesting scenario."

And what about Naxos? Any interest from Microsoft? Does Heymann—who says he and his wife now spent summers in New Zealand, to escape the pollution in Hong Kong—have any thoughts of selling and getting away from the constant turmoil of a fast-changing business that may, after all be, be doomed?

"I have offers all the time, but I wouldn't sell Naxos. It's my passion."

Footnote 1: Klaus Heymann was previously interviewed for Stereophile by Jason Victor Serinus in December 2007and by Sam Tellig in February 2000.—Ed.

volvic's picture

A smart man and wish him lots of success but as I read I wonder how much of the downfall in Classical and Opera CD sales is due to an ageing demographic but also a lack (in my opinion) of great musicians to fill the void left by the Milsteins, Menuhins, Amadeus, Lasalle Quartets, Karajans and Soltis of the classical world.

volvic's picture

Not to disparage Barenboim, Yannick Nézet-Séguin and others who I think are extraordinary musicians but even they cannot lift a label the way some of the older musicians could.

John Atkinson's picture
volvic wrote:
I wonder how much of the downfall in Classical and Opera CD sales is due to an ageing demographic

A quarter century ago, I used to be one of the youngest people in the audience for a classical concert. I still am :-(

John Atkinson
Editor, Stereophile

volvic's picture

at 49 years of age I feel the same way.

dalethorn's picture

I have some CDs on Naxos - Barber, by Alsop/Baltimore and Slatkin/St. Louis. I play them frequently - wonderful recordings. That alone sells me on this guy.

Kal Rubinson's picture

Let me add that the Naxos streaming/dowload site, ClassicsOnline HD•LL, includes not only Naxos releases but those of the many labels that Naxos distributes and that many of the files can be streamed in 24/96. It is a treasure trove.

volvic's picture

and quite reasonable in price, however the lack of major labels; Philips, DG, Telarc etc has stopped me from taking the plunge. Their historical catalogue is quite good though.

Kal Rubinson's picture

Good point. So, I note that a fair number of classic Columbia Masterworks have joined the offerings and that means Sony, these days. Hopefully, more will sign up.

volvic's picture

"Hopefully, more will sign up." From your mouth to god's ear - hopefully Mr. Heymann can do a classical Steve Jobs and get them all under one roof. Classical and opera lovers like myself would pay to have high-rez recordings under one roof. Yes, saw the Sony offerings and that is a very good start.

Anon2's picture

The CD on demand concept is a good one. The market will determine its viability in the end.

I have moved to the digital platform in some ways. But I have also found myself clinging to physical media in other cases. I think that people, for the next few decades at least, will consume a mixture of physical and electronic media.

On the one hand, I have abandoned radio (except in my car) in favor of internet streaming of news and music. I also do not buy newspapers, as I consume most daily news online. However, I still subscribe loyally to the Economist magazine, for example, and read their site at the same time. I still buy physical books as references for building solutions in computer systems.

Perhaps some younger people consume all information electronically. I suspect that many others have adopted to a mixture of media content, using internet-based media in some cases, resorting to physical media in other cases.

In the music realm, I have adopted two main avenues of music consumption. During the day, I use streaming services, mainly from European countries. I am not interested in yet another userid and password for one of the popular streaming sites in the US. At home, and in the car (when not listening to news), my devotion to the CD still reigns supreme.

I have heard download samplers from on-line sources. Yes, they sound better than CDs. Yet I have found no interest in sitting around all day waiting for a track to download, nor am I going to pay for a high speed broadband connection just to enable music downloading.

The download sites (Naxos excepted with what they plan) still have limited selections, and a real Columbia record club look and feel to their offerings.

And, if I did not like a downloaded album, there would be no way for me to put an undesired collection of downloaded music for sale on the secondary markets of Amazon or Half Price books. Amazon has aided me to recoup much money from some of my less successful CD music purchases. My interpretation of downloads is that you had better like what you download; if you end up not liking it, deletion is probably a person's only option.

Similarly, I have no interest, as a person who came of age in the CD era, to abandon CDs to embark on a flirtation with vinyl, and all of the rituals of tone-arm aligning, stylus changing, record-washing, all the ancillary apparatus, and storage requirements that come with this pursuit. I respect people who have vinyl collections and like this pursuit, but it is not for me.

Until CDs are unavailable (even through secondary markets), I will remain committed to this media. SACDs have sustained my interest in new recordings. Naxos is a mainstay of my CD purchases; their guitar series is outstanding. Amazon and Half Price books keep me buying established classics from years past. I am sticking with CDs to the end, while going digital where I need it for other types of media and information.

hollowman's picture

Some very fine recordings/performances from Naxos label are in my collection (Barber/Alsop/engr. by Tony Faulkner).
Also, Naxos records (or re-releases) lesser-known composers and/or works.
A good deal of what Naxos puts outs, IMO, is throwaway : performance-wise, and/or UNimportance of composition [e.g., even Mozart composed a lot of stuff he knew was intended for unsophisticated-BUT-paying public Wolfgang needed for food/rent -- and THESE pedestrian-type compositions don't deserve the attention/$$ of a CD]). Or, "Naxos" may appeal to brand-name fanboys: i.e., for the sake of buying and collecting, or for "completionist" sake (or to shelve as trophies on the CD rack).
Anyway ...
One of Naxos' BEST contribution to musicology is their very educational podcast series, Classical Music Spotlight with Raymond Bisha.
This podcast enjoyed immense popularity (roughly 2005-2009), and then was discontinued until recently (again with Bisha).
I'm not sure where to find the 2005-2009 podcast episodes now (I saved on my HDD as iTunes added them each week ;) The sound quality of the MP3 podcasts are fantastic.