The following comes from Klaus Heymann,
the founder and CEO of
as a contribution to the ongoing
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
I’m grateful that Klaus took so much time to write all this out.
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>Coriglianoand 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
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>TakakoNishizaki’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">
last year — we sold 200,000 sets of a 10-CD box with Mozart’s 100 most popular
2 million pianos are sold in w:st="on">
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?