Classical recording — from the inside

The following comes from Klaus Heymann,

the founder and CEO of Naxos. Klaus posted it

as a contribution to the ongoing

href="http://www.artsjournal.com/sandow/2006/05/new_book_episode_and_allan_koz.html#comments">debate

about Allan Kozinn’s New York Times piece, and I’m crossposting

it here. It’s important reading, since it’s so full of details — including

financial particulars — about how Naxos functions.

I’m grateful that Klaus took so much time to write all this out.

Dear Greg,

I have been following your book

episodes with great interest and I have also been reading your comments on

Allan Kozinn’s essay in the New York Times which was

compulsory reading for all of us in classical music.

Much of what you have to say makes

a lot of sense even though I’m not nearly as pessimistic about the future of

our music as you — more about that later.

What you have to say about the

classical record industry, though, is not nearly as convincing.

The classical record business has

not become a nonprofit operation –most of the independents make a profit

although it may not be the kind of profit or return on investment financial

investors might be interested in. For us

independents being in the classical record business is

a lifestyle, that allows us to live reasonably or very well depending upon how good

we are at what we’re doing. And there are different business models — most of

the independent full

price labels actually make money through sales of CDs and, in some cases, DVDs.

Naxos being a budget-priced label has to rely on other sources of income to

make a profit — licensing, downloads/streaming, subscriptions.

Quite a few of our recordings and

those of our competitors are subsidized — either by sponsors, by the taxpayer,

by foundations or by the estates of composers.

All of us pay our artists

"almost nothing" and those of us who can afford it also buy out all

the rights from the musicians. And yes, it is practically impossible to make

money from selling contemporary music if it is not Adams, Glass,

class=SpellE>Corigliano and a handful of other commercially viable

composers. Whether or not orchestras bear some of the costs depends on the kind

of contracts they have with their musicians. In most of the rest of the world,

recording is part of the musicians’ salaried jobs and orchestras actually make

money from recordings because they can fill empty slots in their schedules. In the

United States, too, some orchestras have deals with their musicians that include

a limited number of recordings for which they have to pay the musicians whether

they can sell them to a label or not. Others have to find sponsors to subsidize

recordings.

I do object, though, to Allan

class=SpellE>Kozinn’s "Dickensian pay to musicians" [although

he does admit that musicians think our terms are in their interest because at

least they get a fee and we pay all expenses such as travel, hotel

accommodation and per diems]. "Dickensian" is defined in dictionaries

as describing ‘poor social and economic conditions [of the working classes]. But

somehow, in the context of his contribution, he seems to imply that like the

Dickensian capitalist of the past we are exploiting the poor working musicians

and make a fortune from doing so. Nothing could be further from the truth –

like the musicians recording for us we don’t make any money from new

recordings, especially not when contemporary music is involved.

Here are the facts: when we sell a

CD to one of our distributors we get $2.00 [yes, $2.00] because we sell our CDs

at budget price. Manufacturing cost is about 65 cents per CD which gives us a

gross margin of $1.35. 35 cents go towards overhead which leaves us $1.00 per

CD to pay for the investment in the recording. In other words, for every dollar

we spend we have to sell one CD. When it comes to contemporary music, another

50 cents come out of the $1.00 to pay for mechanical royalties [more in the

United States and Canada because there the mechanical rates are based on

playing time and not on the selling price, as in the rest of the world ].

An instrumental recording costs us

around $6,000.00 [$2,000.00 for the artist including expenses and $4,000.00 for

production --producer/engineer, hall rental and piano rental and piano tuner if

a piano is involved ]. The first 4000 copies sold pay

for the cost of actually releasing the CD [cover picture and cover design;

booklet notes; mastering; marketing and promotion, etc.]. This means we have to

sell at least 10,000 copies to break even — most artists understand this

calculation and are happy with our business model. Composers understand it too

– and at least they get some mechanicals back if they deliver a fully paid

master to us.

Orchestral recordings cost us

between $15,000.00 and $20,000.00 and, if copyrighted repertoire is involved,

we have to pay another $3,000.00 to $5,000.00 to publishers for the right to

record the repertoire [it's called "material rental"

]. You can do the numbers yourself — with the first 4000 discs covering

the release cost, we have to sell between 15,000 and 20,000 CDs to break even

with public domain repertoire and double that if the works are in copyright. For

example, each of the six volumes of the complete orchestral works of Barber

cost us $25,000.00 to record but, on average, we’ve sold only about 25,000 CDs

per volume — which means we have yet to recoup our investment. On the other

hand, we paid more than $100,000.00 to the publisher in material rental and

mechanical copyright. The calculation is not much better for other big projects

like our complete Lutoslawski and Penderecki

orchestral works and many others.

Then how do we make money?

style='mso-spacerun:yes'> We’re selling lots and lots of compilations

– The Best of Mozart, The Very Best of Mozart, Chill with Mozart, and so on. And

there are a few evergreens that keep selling year after year — my wife’s [

class=SpellE>Takako Nishizaki's] Four Seasons

has sold more than a million copies to date since it was first released in 1987

and continues to sell between 15,000 and 20,000

style='mso-spacerun:yes'> copies per year — and we have another

20 or 30 titles that do almost as well.

Then we license many of our recordings as background music to movie and

television production companies. At the 2004 Olympics all the national anthems

performed at the medal ceremonies were our recordings, generating healthy

public performance income. Then there is the Internet — many people subscribe

to our naxosmusiclibrary. We are regularly the most

downloaded classical label on iTunes, E-Music and

others and in Germany and Japan we even had the most downloaded album across

all genres [classical, pop, and rock].

This is one of the reasons why I’m

optimistic about classical music — it is doing much better on the Internet

than in the record shops and in the concert halls. On iTunes,

classical music accounts for 12% of revenue as compared to only 3% in the

record shops [although the percentage is slightly higher in other big

class=GramE>markets ]. This means, there are many people out there who

don’t go to shops to buy their classical music or to concert halls to listen

but who nevertheless enjoy classical music and are willing to pay for this enjoyment.

Classical music is also alive and well in Asia — we had a record year in

w:st="on">Japan

last year — we sold 200,000 sets of a 10-CD box with Mozart’s 100 most popular

works.

2 million pianos are sold in

w:st="on">China

every year and more than 30 million young Chinese are taking piano lessons.

The market is there but people and

performing arts organizations will have to learn how to adapt to changing

market conditions. I think that, in the not too distant future, orchestras will

have to change and become cooperatives providing all kinds of music to their

communities with the cooperative providing a minimum but stable income to their

musicians and with all members sharing in any profits. Orchestras will have

their own chamber orchestras, modern music ensembles, chamber

music groups, jazz ensembles and rock bands — and they will enjoy a lot more

support in their communities than at present. And management needs to improve

in today’s orchestras — too many are run by music lovers who have no idea of

how to run a business or by business people who have no idea of music.

How many chief executives of

orchestras and other performing arts organizations could successfully run a

normal business with 150 full-time employees and turnovers of between 20 million

and 100 million per year?

Klaus Heymann

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Comments

  1. says

    Dear Klaus,

    A nice story about CD business, but I think it shows the business is dead. According to the story you pay a solist about $2000 for the performace and performers rights, and have to sell about $200,000 at retail price.

    For a solist it is better to not sell his rights, but to sell CD’s at concerts and to make the music available for free at the internet.

    I understand even a well known orcherstra as the Concertgebouworkest will publish live concerts for free at their website.

    For the artist it is more important to get an audience in the hall than to have its CD’s in some stores, as 99% of the retail price of CD’s goes elswhere, and through licensing his music ends up in elevators etc.

    Chel

  2. says

    Klaus Heymann wrote:

    “I think that, in the not too distant future, orchestras will have to change and become cooperatives providing all kinds of music to their communities with the cooperative providing a minimum but stable income to their musicians and with all members sharing in any profits. Orchestras will have their own chamber orchestras, modern music ensembles, chamber music groups, jazz ensembles and rock bands — and they will enjoy a lot more support in their communities than at present.

    I’m not sure why the idea of “cooperatives” always seems to pop up, or why providing musicians with a “minimum income” plus profit sharing will do anything but drive good people out of orchestras and stop good students from aspiring to replace them. We are, after all, a non-profit business. Klaus’ whole argument for not paying musicians well is that any profit he might make would be wiped out otherwise.

    And management needs to improve in today’s orchestras — too many are run by music lovers who have no idea of how to run a business or by business people who have no idea of music…How many chief executives of orchestras and other performing arts organizations could successfully run a normal business with 150 full-time employees and turnovers of between 20 million and 100 million per year?”

    Certainly more orchestras would be in better shape with better management – but then that’s true of the airline industry, the auto industry, and the US government. My guess is that most of those running orchestras with budgets in excess of $20 million would have done quite well running for-profits of equivalent size – which, for the most part, are not as complex as are orchestras.

  3. Anonymous says

    It seems to me that recordings have to be viewed as a marketing expense first, like having Yo Yo Ma as a guest. There is no way to make economic sense of it. We will never break even doing either of these things.

  4. Tony Faulkner says

    Seen from here Klaus’s comments on classical recording are exactly on the mark. Whether you want to believe them or not is more the question than whether he speaks the truth. The future for recording and distributing recordings of classical music is definitely not to pretend it is still 1970 or 1982. Watching the musical chairs going on at the top of the old-style record companies as the Warner Classics chair was taken away has been an exercise of limited relevance to most of us. I have been full time in the classical recording business for a long time as a sound engineer and have been thrown around by the big changes which have gone on and are going on now – technical changes as well as the economic ones.

    In my experience many orchestras and classical performers have already thrown away the notion that income from recording will automatically feed the thousands of mouths it used to with huge corporation cheques going back and forth. The whole structure of the business has changed, and so must our attitudes unless we choose individually to throw in the towel and to find other employment. If recording is not going instantly to buy us the big house of our dreams, then what does it do for us? It is now a fundamental part of how we reach our audience, how we extend our audience well beyond the suburbs of the cities where we perform, and how we extend our audience in time as well. A recording remains one of the best forms of how we market ourselves.

    Klaus has been very honest in his explanation of the profit and loss account of a typical classical recording. It might be helpful to look at the profit and loss account of a typical orchestral public concert, and to look at the value for money aspect. Over here a typical London orchestral concert costs well into the tens of thousands of pounds even before the conductor and soloist get paid. Without subsidy from public funds or from generous sponsors they would be heavily in the red relying uniquely on ticket sales, and the balance sheet would be even dodgier than that of a commercial recording. Without recording one thing is for sure: a concert is all over in a couple of hours apart from fond memories, some empty wine bottles in the Green Room and a couple of reviews. Add recording and streaming as possibilities and the performance has the potential to reach many more music lovers and to live on much longer if it deserves to.

    My Company has done a lot of orchestral concert recording and some streaming as well (April 2005 from the Royal Festival Hall with the Philharmonia Orchestra) and I think the future looks bright for those with the imagination and inspiration to get on with it, rather than stare into a metaphorical half empty glass of Scotch. Just listen to some of the LSO’s releases on iTunes for example and confirm that they have been doing some very exciting and worthwhile recordings, all under their own control.

    Tony Faulkner

    GREEN ROOM PRODUCTIONS LONDON UK

  5. says

    The topics are very interesting, and what has been said so far is both accurate and sad. The big elephant in the room is the recording itself, as an animal. I believe we find ourselves at the tail end of a chain of events which have made recordings unprofitable, and this new art of recording (totally different from the art of performing) has been somewhat detrimental to the popularity of classical music generally, and profitability of recordings specifically.

    Recordings revolve around the “repeated listening” mantra, meaning all imperfections have been taken out, and the music is somewhat sterile. Audiences listen and expect something close to the recordings (which is more and more lifeless) in the concert hall. Artists then try to emulate the “greats”, and the whole art has gotten so stale it’s a wonder anyone comes to concerts. While music will survive, and popularity of piano sales in China is also reflected in popularity of piano sales in this country, many of these people do not come to concerts, and buy little recorded music.

    I do believe we have to think outside the box. Free broadcasts: a good instance. Revenue could be generated from advertising. Perhaps Naxos could operate under that premise…. Offer everything FREE (the way Washingtonpost.com is free…) and make money from advertising revenue. I am not suggesting this could be the silver bullet — just that it should be explored. The newspaper analogy is particularly useful, because physical newspapers are actually more expensive to print than the price to buy them! Advertising is everything in the newspaper world. Perhaps recording labels could click in to that…. Maybe you can get Brendel only on Phillips.com — and it is free, but the millions of downloads have to go through an add or survey to get to the files.

    Thinking outside the box, we could also ponder of doing what to do resurrect the art of performance. Recordings at their best (50′s, 60′s 70′s) captured the performance, while now we have recordings capturing another art altogether.

    I have toyed with the idea of offering some type of file which is self erasing. If people want to hear my Rachmaninov G Minor Prelude, for instance, I could record it 10-20 times, and for a price, buyers would buy the rights of one time listening of all versions. I would retain as an artist the choice (perhaps from touring with certain pieces), of which versions I am happy with. Listeners would never get the definitive recording, because it ideally should be elusive. But we would at least attempt to cross recordings into the realm of un-replicable moments, cherishing listening, loving the imperfections of “live” and getting out of classical music as background noise. When you only have 20 times on one recording, you won’t read a book when listening to it, since this might be the best version with one particular artist.

    The technology is here. Creativity abounds. What has not happened is recording labels have not caught on with these ideas. Old models of selling recordings are not going to be the same for classical, or for pop for that matter. All we need is for some of these business heads to listen to what some of these possibilities are, and put some investment behind it. This is only a changeover.

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