Naxos founder Klaus Heymann on music, streaming, and the vinyl fad

Founded in 1987, Naxos has risen from a marginalized budget label to one of the classical recording industry's greatest success stories. That's due in large part to the vision of founder Klaus Heymann, who moved more quickly than any of his peers to embrace the digital revolution. At 78, Heymann continues to lead his label and shows no signs of slowing down.

The German-born Heymann now lives in Hong Kong; I spoke with him by phone when he was recently visiting New York City. Our conversation ranged across subjects including his label's history, their CDs' iconic white cover design, the status of classical music today, and the "nostalgia" craze for vinyl.

What brings you to New York this morning?

Well, on Monday I went to Yale. I was awarded the Sanford Medal, which is for distinguished concert artists and members of the music profession. I don't really qualify, but they thought I had done good service to music, so gave it to me.

Then I spent a few days here to meet with my people from Naxos — lots of things going on in the U.S. company, and the head of our IT activities is here. Lots of things going on.

That actually gets to one of the questions that I had. Given that you're operating in many countries all around the world, how is the U.S. market different from others, in your view, for classical music — and specifically, recorded classical music?

Well, in essence it's our biggest market, partly because it is in the forefront of online developments. There are many different sources of income we have here that we don't necessarily have in all other countries. It's a bit more difficult than, let's say, Germany or Japan or the U.K. because there are hardly any shops left.

In the other three major markets there's still a reasonably healthy retail environment. Here, it's mostly mail order — including our own — so in that sense it's a bit more difficult, but on the other hand you have a lot of online activities. It's a big market for our music library. It's probably our biggest market for downloads — so I'm not complaining.

Why do you think that is, that the retail environment is so different in the U.S.?

Well, I mean, look — all the shops have closed, you know? Tower was the first to go, at some cost to us. The HMV stores are gone, the Virgin stores are gone. JB Hi-Fi, the shop downtown, is gone. In New York, the Juilliard shop, really, is the only place left where you can buy classical music. I think there was the competition, of course, from Amazon, where all the mail order started; I'm sure they've caused mail order a lot of problems, and of course in the process they've become our biggest customer.

I have a big-picture question for you: in your long career, you've seen a lot of changes in technology, but also changes in culture. How do you think the place of classical music in society has changed since you started in the record business — the way people think about and consume classical music?

I think classical music has become more marginal. Just look at the press coverage: when I first started, classical music news very often made the front pages of newspapers and magazines. Nowadays, even in the New York Times — which I read daily, even when I'm back in Hong Kong — there's very little about classical music in there. I think the Times used to have five or six [classical music] writers; I think they've got one left. That's one of the indications. Also, symphony orchestras struggle to remain relevant.

On the other hand, classical music has become far more accessible. You can listen to practically anything online: go to YouTube or go to our Naxos music library. Young kids have become far more attuned to the sound of a big symphony orchestra because of video game soundtracks — so I don't worry about the future of our genre, but it's no longer front and center.

Look at Toscanini's times: he was a superstar. Nowadays, which classical conductor is a superstar? We know in our industry who the big stars are, but the general public has no idea. There's no more Karajan; Karajan used to be headline news.

It's become a more marginal genre of music, and become more marginal in society, notwithstanding the fact that it's still a huge industry. The classical record industry, I think, is about a $100 million a year business in the United States, but the classical music industry, if you include orchestras, opera houses, ballet companies, and music schools, is probably a $5 billion a year business. So it's just that the industry has become marginalized, and the press coverage and so on, but it's still a sizable...well, you shouldn't call orchestras and opera houses industries, because they don't make any money [laughs], but classical music is still a huge activity area with huge budgets. It's no different in other countries: in Europe, I think, even more money is spent on classical music than here in the United States.

You must be proud of the role Naxos has paid in keeping classical music accessible, including being at the forefront of making music more accessible digitally.

Yes, of course here we have been pioneers. We put our whole catalog online in 1996 for streaming, well before anybody thought about streaming as a viable business model. It was free at the time; it was meant to be a marketing tool. We wanted people to listen online at 20kbps and then go to shop and hopefully buy the CD.

Then, of course, in 2002 the music library was launched and that was, at the time, the first streaming subscription platform in the industry. Then we added the Naxos Radio, which was 80 channels. That one in our company sort of fell through the cracks because we didn't know how to deal with the bandwidth cost, but in many ways, yes, we are pioneers in our industry.

Also in terms of the wide range of music we've recorded. I always make the joke that if there's a separate heaven for forgotten and neglected composers, when the time comes I will be admitted as an honorary member. People like Spohr and Rubenstein, they will greet me with open arms.

When you think back to the '90s, when you first started to make music available on the Internet, what do you think you could have predicted about the way the Internet has changed music and what's surprised you in the last 20 years?

I don't know. Nobody could predict how far distribution — making music available on the Internet, all the free music — how far that would go. I didn't hit on the idea myself; I read in the New York Times or the Wall Street Journal sometime in '95 that the Internet might be the future of music distribution. It was by no means a certainty, but being the owner of the company and being free to spend my own money as I saw fit, I said, okay, let's give it a try.

I think what has gone too far is that there's too much free music on the Internet — and more and more people make free music available. Just look at all the symphony orchestras now: they're streaming their concerts and very often compete with themselves. In Europe, 12 opera houses have just joined forces and stream one opera free every month. I think that has, basically, undermined the foundation of music-making.

Musicians have to be paid, you know, and record companies have to earn money, and if all this stuff is available for free, it's difficult to find a model that works. We make money not from selling CDs and downloads; we make money from having a huge catalog that's available in practically every platform and generates steady income streams.

If I had to live off record sales and downloads, I'd jump out the window tomorrow. I think 90% of what we produce nowadays loses money, if you strictly look at CD and download sales.

So you think a sustainable future for classical music online will look like a subscription model?

Yes, I think so — but it's really difficult, because if you look at what a typical consumer used to spend on music in a year, people bought maybe two or three CDs a year. That's the average person, and that would have been 30 or 40 bucks maximum — and now we want people to spend $5 or $10 a month. That's a lot more than they used to spend. Spotify's paid model is about ten dollars a month, and they're suggesting making it five dollars a month. That's stil more than the average customer used to spend.

On the other hand, the true collector who used to spend maybe $100, $150 a year, they're willing to pay. The Naxos music library is $15 a month, and the subscriptions are growing. So if you appeal to a niche market, you can probably get paid. I think appealing to Joe Doe and expecting to get paid $10 a month, that's probably going to be a very difficult proposition — and unless the rates per stream go up, you just cannot make a living. Our music library pays 4.5 cents a stream, and Spotify pays us 0.5 cents a stream. If Spotify paid us five cents [a stream], everybody would be really happy and we would be thriving. Unless the per-stream rates go up, or unless we come up with some other business model, it's going to be very difficult.

In a recent statement, Naxos USA president Jeff Van Driel spoke to another issue regarding compensation and streaming: the issue of reporting what's been played so it goes to the right musicians and labels and they understand what pieces have been played in a type of music where sometimes a track might be called "First Movement." Can you speak to the issues around reporting and compensation through streaming services?

If I look at our reporting, ours is excellent because we have excellent metadata: we can tell you by movement, opus number, and so on. But he was talking about the kind of reports artists get from SoundExchange, and I know from my own experience — I get my wife's reports, and she gets reports that say "Allegro," you know, or "Spring." No composer, no work. This may be partly due because SoundExchange doesn't have any idea what it's all about — and they don't — but it's also that the services reporting to SoundExchange don't provide the proper metadata.

I write on behalf of my wife to SoundExchange, and a senior customer service representative comes back to me and I say, look, you have to provide the names of the composers, and they say, "We don't deal with composers! You have to go to BMI." He didn't even understand the issue: that in order for us to identify where the money for our label comes from, we need to know the name of the composer and the name of the work. So now that we've made a direct deal with Pandora, we will find out whether it was Pandora's fault or it was SoundExchange's fault. But I think by and large what we get from Spotify is identifiable. What we get from Deezer is identifiable. So we will see.

To change the subject, I'm interested in your thoughts on graphic design. Unlike most labels, Naxos uses a simple, fairly standard template for most of your CD releases — and it's sort of become a signature of the brand. Was that a deliberate choice?

Well, in the early days of the label, of course, we didn't have money for fancy artwork and design was all done in house, so that's where we came up with the simple white Naxos design and the square pictures and fine art pictures, which you got free of charge from art books at the time and from art galleries and so on.

Nowadays you will see that probably about half or more of our covers actually are full-bleed covers and are designed properly. We pay a little bit for the pictures now; we used to pay a lot more, before there were websites where you can get really very good photography for very little money. It was really a matter of the cost of the source material, but also we didn't have money to pay fancy designers. Now we have most of our designs done in London and the Philippines, and we have quite a good team of designers. If you go to our website, you will see that quite a lot are really nicely-designed covers with nice pictures.

This has been a way that consumers identify Naxos as a label. In your experience, are most consumers sensitive to what the label is, or are they just concerned with how the music sounds or what the price point is?

I think most consumers really buy either the artist or the repertoire. When it comes to the independent labels, they buy repertoire mostly — of course, independents also have identifiable artists — and the majors have always been artist-driven, big name star-driven. We were lucky that in the early days when Naxos first hit the market, retailers said, oh, we don't want to have that crap in with the other stuff, and they put it in a little separate bin in the corner. That separate bin then developed over time into the white Naxos walls. You had them not as much here in the States, but you had them here in the U.S. as well: in Europe at HMV and many other music stores, there was a white Naxos wall.

We had many, many discussions within the company [about] whether we should abandon the white design, and there were conflicting opinions. Of course nowadays there are no more white walls and separate bins in stores; I think we lost that advantage and the need to identify ourselves as that white label. We were the first and only label that was marketed as a label: you've never seen an EMI or DG wall, or a Sony/BMG wall in any store. They always were in the bins with each other in alphabetical order by artist or composer, so people actually recognized Naxos as a label far more...well, maybe the way in the old days people recognized DG the label, or maybe EMI the label a little bit, but they were never sold as labels the way Naxos was sold and marketed as a label.

Thinking about retailing and retail display brings me to a question that occurs to me, looking in the other direction. We've been talking about digital music and streaming music, but a growing segment of the record industry is vinyl. It's certainly a huge deal in indie rock, but the vinyl comeback hasn't impacted the classical music industry the same way yet. Do you think vinyl will come back in classical music?

Well, if you call it a "comeback." It's a tiny niche of a tiny niche business. I think it's a nostalgia thing. I just had an LP made of my wife's Butterfly Lovers in Hong Kong on premium vinyl, and it's just a very beautiful-looking product...but it's not really a business. How many can you sell? You can sell maybe a thousand, and the cost of mastering and manufacturing the disc is very high.

Of course, some people say the sound is warmer, but that's a fallacy because, basically, recordings are mastered differently for LP. The stylus couldn't track the highest frequencies, and couldn't track the biggest bass notes, so there's a different equalization curve: the RIAA curve. I can manufacture a CD that sounds like an LP if I tell our studio to master it for the RIAA curve.

So I think it's a nostalgia thing, [but] we've discussed it. Naxos started as a digital label, so we don't have a lot of recordings we could really, truthfully, transfer to an LP. Maybe we could do a digital-to-analog conversion of our new 24-bit 96kHz recordings, but I think it's a gimmick. It's a nostalgia thing. I wish I had kept all the Marco Polo LPs we first released in the early '80s, but even Marco Polo switched to CD-only almost within one or two years of the launch of the CD.

If there were a business, I would be in it. We've tried everything, every format from minidisc to SA CD to DVD audio, and now we're in Bluray audio, so I try everything — but I'm not convinced that the LP business will be sustainable.

Thinking across your career, if you were to go back and start again in the record business, would you do anything differently?

Well, we haven't made many missteps. If we had made many missteps, we wouldn't be where we are today. I approached this business originally as a hobby. My first label, Marco Polo, was strictly a hobby — partly to keep my wife busy as a best-selling violinist. The way we went into the CD business with Naxos...we went about it step-by-step, and always looked ahead and made the next step and didn't commit really too many serious errors.

So no, I wouldn't do too many things differently. The result probably justifies the way we've grown and developed, and I think today we're the backbone of the independent classical record industry with our digital and physical distribution.

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