Klaus Heymann of Naxos

Klaus Heymann has some surprising news. During an in-person chat in the lobby of San Francisco's Mandarin Oriental Hotel, the founder of the label that turned the classical-music recording industry on its ear revealed that, in the US, classical-music sales for the labels that Naxos distributes are stable.

This year, Naxos' sales are up 6% for CDs and down 3% for DVDs. Taking into account some big DVD promotions in 2009, even DVD sales are stable. These figures fly in the face of what's happening in the pop-music industry, where US sales of physical CDs are decreasing 10–15% per year. It also defies Naxos' "biggest problem," the shrinking of US retail outlets for physical CDs, and their replacement by online sellers such as Amazon.com and ArkivMusic.com.

Equally surprising, downloads of classical recordings are not growing as strongly as they did in the past. "I don't think the future of the industry will be entirely downloads, as we had thought maybe three years ago," Heymann told me at the start of our conversation. "But they're still a stable income—stable, not stagnant. Downloads are still a significant portion of the business, but they're not growing at a rate that looks to overtake physical sales any time soon. We expect a growth of maybe 1–2% this year in the US, but not at the dramatic rate we experienced before."

In the rest of the world, classical downloads are a far more modest percentage of Naxos' total business. Only in the UK and Australia do they exceed 10% of physical sales. "In Continental Europe, downloads are dismal," he says, "and growing from a very small base. Europe has not caught on to downloads, as has happened in the US, UK, Australia, and Canada. iPods are popular, but people buy CDs and transfer them to iPod rather than downloading titles. Japan and Korea are good download markets, but that's mostly to mobile phones."

Regardless, Naxos has good news for audiophiles. Coming soon are its long-promised, full–CD-quality and high-resolution two- and 5.1-channel downloads—both 24-bit/96kHz and 24/88.2, depending on the master recording. In addition, Naxos' first two- and 5.1-channel Blu-ray, of music by John Corigliano, will be out by the end of September. Other Blu-rays, such as Mahler's Symphony 8 and Mendelssohn's Elijah, await only the creation of subtitles.

"In the end, I think surround sound brings infinitely more to the listening experience than the extra extension of the frequency response or 24/96," Heymann says. "But since the market demands 24/96, we will do it, both in stereo and surround, as both Blu-ray audio discs and downloads. We may do 24/88.2 downloads, if that is the way it was recorded. But upsampling 44.1 to 88.2 or 96 is not legitimate, in my opinion; we're not going to do that. We may put out 24/44.1 surround, which is how many of our older titles were recorded, but we'll clearly declare that on the cover."

Heymann expects physical formats to continue for a long time. "Whether physical product will be a half of today or a third of today, nobody knows," he says. "There will also be downloads, and all kinds of subscription things. Our streaming classical-music library right now is by far the most successful in our field, and the most profitable for us and for the labels. But there may be others that mix paid and unpaid [streaming]. No one knows if they'll be free or half-free, or whom you'll pay. Whatever happens, we'll be part of the future."

Heymann, who founded Naxos to promote the artistry of his wife, violinist Takako Nishizaki, explained that Naxos is no longer simply a record label. Instead, it's a service provider to the classical-music industry that also has a label. Naxos' logistics center in Germany provides logistic services to every DVD music label except one, Opus Arte; carries everyone else's stock and ships it around the world; and does the same for a growing number of classical labels worldwide. Naxos has also taken over US distribution of Warner Classics' audio content on CD. Beginning September 1, Naxos will offer repertoire from Warner Classics, encompassing titles on the Teldec, Das Alte Werk, Erato, and Warner Classics imprints, as well as the Lontano and Apex labels. As part of the agreement, Naxos will make available more than 2000 classical products, including a range of titles which are currently unavailable in the US.

"Frankly, the last thing I wanted to get into was being a service provider," Heymann admits. "But in order to build our own label and do all the things we're doing, we needed an economic base. Providing services to others was a sound economic base."

Young people, he believes, are the major beneficiaries of classical music on the Internet. The percentage of young people who access Naxos' music via the Web is greater than those who buy CDs or go to concerts.

"Naxos radio has 75 channels, preprogrammed, where you can listen to whatever you want," he says. "If, on your way to work, you want to listen to guitar music or baroque violin concertos, you go to Naxos Radio and click on the genre. You can listen 24 hours a day, and it costs you $20 a year."

Toward the end of our discussion, Heymann shared some information that gave me pause.

"The classical market has now probably shrunk to the core collector," he says. "There are very few titles that will sell huge quantities like in the past. We think the market that we all sell to is between a million to a million and a half. If you sell well, it means you have good titles. But you're not expanding the classical market any more, even with the most sensational stuff, such as the 100,000 copies Harmonia Mundi sold in Japan of the blind Japanese pianist who won the Van Cliburn International Piano Competition." [Nobuyuki Tsujii's Gold Medalist: Thirteenth Van Cliburn International Piano Competition, 2009 live recording, Harmonia Mundi HMU 907505]

"Where we used to sell 40,000 copies of an orchestral recording, we now sell 10,000 or 15,000. At that rate, we can't make money any more. So we make money from distribution and licensing. We've gone into e-books with embedded music and website links; the first 10 titles are due in October. We're launching a 400,000-word classical-music dictionary with embedded crosslinks. Our www.classicsonline.com site has 1500 to 2000 orders per day, but it breaks even only because it has other platforms that use the same database. In fact, right now, none of this makes money. But it will."