Gramophone met up with Klaus Heymann, founder of Naxos, to find out his views of the future of the classical recording business and the role Naxos will play in it.

Gramophone: Describe the challenges the rapid growth of online music has posed you. 

Klaus Heymann: We have to be quite clear about the fact that there will be the CD – or a physical carrier – for many more years to come. The classical CD is not declining at the same rate as pop or rock. This year, if we look at various territories for the first four or five months, it’s actually pretty stable – some are down, some are up, but on average I think CDs this year will be the same as in 2009. We don’t have that rapid decline.

G: How would you explain that – is it the collecting aspect connected to classical music?

KH: I think we are basically down to the core collector. And I think that’s at a stable level. Any changes in sales are more due to repertoire, or one-offs – like in Japan, where Harmonia Mundi sold 100,000 copies of Nobuyuki Tsujii [pianist, and Gold Medal winner of the Van Cliburn Competition]. These kind of things can change it dramatically. But by and large I think we’ve now found a fairly stable market for physical product. Beyond that of course we all look at where will it happen online – what is there beyond the physical business? And it looks like downloads will not be it.

G: Why do you say that?

KH: Well, the growth in downloads has slowed down dramatically. There’s a bit of growth, but it’s not at the same rate. Again we’re talking about classical music, but I doubt it will go above 20 per cent of total sales. And 80 per cent physical. Possibly a little higher than 20 per cent in the States, and the speed of development is different in different markets. I think the future of listening will be an all-you-can-eat formula where people pay a flat rate, per month or per year, and they can listen to as much as they want. This is the model of our music library, and now our video library, of the Spotify premium model, or Rhapsody. It will happen on TV as well – I think we will not be interested in watching 150 channels and looking for what might be on at that moment. But if someone wants to watch Parsifal, they want to watch it now, and they can watch it. We’ll still see what we call linear channels, but more and more it will be an ‘on demand’ service. That will be the future. What form it will take – whether the service will be offered by broadband providers, ISPs, by telephone companies, by cable TV, electricity companies – nobody knows yet.

G: But for now, for you, it’s still through a Naxos site?

KH: There is the Naxos Music Library, and the Naxos Video Library, but if anybody comes with a similar concept then we are happy to offer our content. I think there will be many different operators trying different kinds of formula. And so if they want to download our content, and pay for the hard disc, here it is and see what they can do with it. At the end of the day, if you look at when downloading first started and more and more sites sprang up, we thought ‘we have to be on all of them’. But at the end of the day there are no more than 10 sites that can actually sell classical music. There’s iTunes, there’s Naxos Music Library, probably second now, there’s eMusic, ClassicsOnline is probably fourth, then there’s a bit of Rhapsody, a bit of Napster, there’s ArkivMusic, there’s Classical Archives. So instead of being on all the sites, it turns out that certain sites can sell classical musical, and others cannot.

G: And what sells classical music online?

KH: I think the selection. The kind of traffic sites can generate. For example on our ClassicsOnline website the traffic is static and we’re trying to figure out why. Our Naxos.com website has more traffic, so we’re now considering putting downloads on Naxos.com as well to see whether together the two sites show growth. It’s a lot of effort generating traffic – you know this. The conversion rate is very steady, 1.5 per cent of people who visit the site buy, but the traffic doesn’t grow. But the Music Library is showing very strong growth.

G: When you started the Music Library it was very much aimed at academic institutions, conservatoires, and so on.

KH: Well, it’s still universities and music schools which account for a large percentage of users. More and more professional musicians use it. If you talk to Marin Alsop or Leonard Slatkin, they say they can’t live without it any more. They use it for making programmes and listening when they travel. There’s an iPhone application now, and we’re working on Blackberry and Android applications – that’s more and more attractive to professional musicians. If a cellist is building a programme of French cello music, and they want a piece that is 11 minutes long, they can type in ‘10-12 minutes’, ‘France’, ‘cello’, click – and all the pieces come up.

G: So the functionality is specifically designed with that audience in mind?

KH: That’s right. And you can also find the publisher, and instrumentation – we’re building more and more features into it. We have GCSE, A-level, Baccalaureate music programmes in there, we have a Canadian music programme in there – we’re building more and more into the site. We have playlists of all the major exam boards – ABRSM, Guildhall, and so on.

G: Are you going to create a new front end for a more general audience?

KH: Yes, we will have a consumer site. This will be integrated with the download site. You can download, you can order the CD or DVD, or you can buy a streaming subscription.

G: Last time we spoke you were talking about providing music for a car manufacturer. So you’re in the position of being both content maker – A&Ring, recording etc – and also the content provider, the seller. Not many labels work in this way.

KH: Well, they’d like to, but they don’t know how to as they’re too small. So we do the licensing for them. We have about 30-40 labels whose content we also licence. You need a representative who sells – so we have a sales force, we have one person here in the UK, two in the States, one in France, one in Germany, one in Sweden, so it takes active effort to sell. We are big enough to be able to offer our services to other labels. Naxos started out as a budget label, and now we’re the major service provider to the industry – distribution service, logistics service, digital distribution for Chandos, Bis, for more than 60 labels, we supply the content to iTunes, to eMusic, we create metadata in Hong Kong and the Philippines. No label can do it on their own.

G: Metadata has been one of the problems with classical music online – very few get it right.

KH: That’s right, and we’re very good at that. I myself proof-read every entry – I don’t proof-read the whole listing, but I proof-read what appears on screen, as one line, and make sure that’s 100 per cent correct, and I sometimes look at others to check they’re consistent. Spelling consistency is an issue – is it C major: capital C, lower case major for example – iTunes has a formula which is not quite in line with musicology, so we basically keep two sets of data, our site which is [in the same style as] Grove and the RED catalogue, and another one which is the iTunes standard which they’ve set. Data creation is really very important – that’s why we employ 13 musicologists in Manila, and another two in Hong Kong.

We’re now working on an online music encyclopaedia, we’ve right now people who are copying up all of our music notes into the sections that belong to individual works. Of course normally our music notes are for an album, three different works, and we’re cutting apart those music notes for the album and attaching the music notes to each work. We’ve now 5000 of those – and we have about 40,000, so there’s still a way to go! Then we have lots of books on classical music, the history of opera, the history of classical music, the A-Z of conductors, so we cut all of that up. So if you just have all our own content, we have actually something as comprehensive as Grove – not as scientific, but Grove has no music notes, and no music. And every entry will have a link for listening.

G: How will you monetise that?

KH: You subscribe to the Naxos Music Library and you pay an extra five dollars to access the online encyclopaedia.

G: How do you see tomorrow’s music consumer? Let’s look at labels – people used to identify with, and follow, certain labels. Is that changing?

KH: Well, I think, the major labels don’t have a lot of label loyalty. People don’t go into a shop and ask for the latest EMI, or DG – they will ask for the artist. Whereas the label loyalty is with the indies – people who buy Hyperion, people who buy Harmonia Mundi – labels which stand for certain things, have a well-defined image. And Naxos is I think the only label which is sold in shops as a label, I’ve never seen Hyperion stands, or EMI stands, but there are a lot of Naxos stands around the world. Because the label is based in Hong Kong, we don’t have a natural identity – so in England we’re an English label, in America an American label, with the American classics – we’ve had a few lucky breaks in that respect.

G: In terms of the recordings you still make, what do you look for? What drives your A&R policy?

KH: Amazingly, we’re still filling gaps in the repertoire, that’s still our No 1 guide. Then we produce for specific markets – so here in England it’s very much driven by Select, so the English Song Series, English Piano Concerto series. In America we produce a lot for the American market, it’s our biggest investment, and it’s also our biggest market. Our house artists need to be kept busy! Marin Alsop, Leonard Slatkin, have a list this long [of things they want to record]! We also now build [new] artists. We will still continue filling gaps in the catalogue but our oldest recordings are now almost 25 years old, so I think we could now justify doing some standard repertoire again. If you want to sign successful artists, you have to offer them the standard repertoire also. So we’re now doing Shostakovich with Petrenko, and the next big thing is a Mahler cycle.

G: Who is conducting that?

KH: We haven’t decided yet. But this may be the future. Beethoven symphonies, Mozart symphonies – we don’t need another Brahms cycle, Marin has done that – Schumann symphonies, a Tchaikovsky cycle, that is also 20 years old. I have a few pet projects I want to do – Pfitzner’s Palestrina. That’s something I will do for my private pleasure. I would like to record the complete Pfitzner, he is one of the most underrated composers.

G: When do you think this move towards online music being about streaming and not downloading will happen? A year, two years?

KH: We were talking to our people in the States who are the most advanced in all these things, and they think that in 12-18 months we will know where it will go.

G: How aware are you of the demographic of your online listeners.

KH: It's a much younger audience than who goes to concerts. It's a little bit distorted by the demographic of the Naxos Music Library, which is obviously sold to an audience of 18-24 – we now have entire school districts in the United States, where all schools have the Naxos music library, and it's growing. And that means the audience now goes down to six years. We hope to equip schools in China with MP3 players, because many rural areas don’t have broadband – it's not ideal sound, but you can reach young people. There are a lot of people who don't know that we make CDs! We went to the library convention, and we had a stand – and this guy had a stack of CDs, and the music library next to him with a screen, and his music librarians came over and said “I didn't know you made CDs!”

G: What will the industry look like in 10 years time?

KH: Actually I think it will not look too much different. Physical sales will be there, we will probably reach a point where it's just a hard-core [of collectors] we're selling to. And then there will be high-end people demanding the ultimate in sound – and I think that will be Blu-ray, or high-end downloads, studio masters, but this will be relatively small. I think those downloads will go back down once there is an established high-end physical product out in the market. And then you will have all kinds of subscription services – there will be the equivalent of iTunes as a streaming service – iTunes doesn't want to do streaming, not yet, but my guess is they will change their mind. There will probably be a jazz streaming site, there might be a world music site, and several classical sites, we don't know, it depends on how much content they amass. And that will be pretty much the market. But there are now things we never thought would happen – you can now watch opera in the cinema. There is enough content now that each city could support one or two cinemas showing only high-definition music content. That's a whole new business, and we're gearing up to have one sales person per subsidiary who can do that business.