The Story of Naxos

by Nicolas Soames

  Critics in the UK and the US increasingly praised Naxos recordings regardless of their budget price. A new CD was welcomed unconditionally. Yet there were still Beckmessers all over the world, and it wasn’t until 2001 that a Naxos disc won a Gramophone Award: Vaughan Williams quartets played by the Maggini Quartet. The tide had turned, and in 2005 we were even Gramophone Label of the Year. In the US we started to get GRAMMY nominations and have now won sixteen of these coveted awards. We still occasionally get reviews from old critics who say, damning with faint praise, that a particular recording is good considering its modest price. That annoys me if I see it now, but it doesn’t happen often anymore.

  Klaus Heymann himself was no longer regarded as some kind of classical pariah but more of a pioneer.

  Recognition for what Naxos has done was a long time in coming. I had been accused for years of having destroyed the classical music industry by offering classical music cheaply. That was nonsense of course. I couldn’t do that with only 10 per cent of the market. I simply didn’t have the market power. The majors destroyed themselves by the way they ran their businesses, spending inordinate amounts on the star system. They ran their companies like the film industry whereas the independents ran theirs like well-controlled small businesses.

  I know exactly what I have spent on each recording, and where there is an overrun I know how many copies of a recording I have to sell to break even. I make sure that my artists have prepared for the recording sessions: they don’t appear and start to rehearse and find out they can’t play the music. These were all things that the majors got wrong: they let the recording costs go out of control; they let artists’ fees escalate; they gave approval rights to artists for covers, which resulted in some serious abuses by ‘star’ performers; and when they had The Three Tenors everyone tried to emulate that success with ruinous consequences.

  The majors fared no better in spotting and harnessing the next great change that faced the record industry.

  Eight

  Naxos: The Digital Age 1996–2011

  Then there was the Internet. Heymann was perhaps the only significant player in classical recording who not only saw it coming but actually prepared his company accordingly. It was remarkable prescience, and enabled Naxos to become the strongest single classical force in the early years of the twenty-first century.

  In the mid-1990s I was not aware of the Internet at all. But one of the great advantages of being in a modern city like Hong Kong is that we are very close to the cutting edge of technology. One day in 1995 Mr S.K. Wong, my Hong Kong warehouse manager, came into my office. He was into computing as a hobby and spent time on the Internet for his own amusement. He said, ‘Let us do a website for our company.’ I asked him, ‘What is a website?’ He told me. I said, ‘Ok, let’s do a website.’ So he created one. There was no music on it, or maybe just a little, but I didn’t really pay any attention. He suggested registering both ‘naxos.com’ and ‘marcopolo.com’. I didn’t understand the importance of having your brand names registered and told him to register ‘hnh.com’ [the name of the Naxos parent company] instead. I didn’t understand why one had to have two websites if you could have one. It was a really stupid decision! It took us a lot of effort and money to get naxos.com later on, and it proved too late for marcopolo.com.

  One day I read in The Wall Street Journal that in years to come music would be distributed digitally – that it would be the future of the business. I thought, ‘Wait a minute, let me look at our website.’ I saw it was a very unsuitable design: it took three minutes to load and the database was in a mess. I said, ‘Close it down, let’s start from scratch. Clean up the data. Come up with a homepage that loads in thirty seconds and not three minutes.’

  Then I realised that this was a great platform on which to let people listen before they buy. So I decided to put the whole catalogue on the Internet so that people could listen, track by track, at low fidelity. It had to be low fidelity because of the cost of the bandwidth. But it was completely free. Most of the world was still working with dial-up Internet access so it wasn’t fast. But that changed more rapidly in Hong Kong and some other Asian countries, before the US and Europe, so I was always able to be ahead of the game. I could see possibilities before the rest of the main classical world. hnh.com had started in 1996 and by 1997 our whole catalogue, both Naxos and Marco Polo recordings, was available for streaming on the site.

  For a long time I regarded it as a promotional tool. We had about 2,500 titles at the time and all of that had to go up on the Internet, along with covers and notes! We had a room full of young computer-savvy Hong Kong boys doing all the input. It involved tremendous expenditure because bandwidth was so expensive in those days.

  Things were moving fast: the concept of what was then dubbed ‘the information super highway’ was becoming a popular media topic. By 1998 other classical websites were beginning to appear and some people spent a huge amount of money on projects which were only to come and go. Heymann’s websites hnh.com and later naxos.com survived partly because Naxos could afford to subsidise the service from the physical business, but also because the company didn’t burn cash to promote the sites and it did all the development work in-house.

  I didn’t see it as a business to start with because of the cost of the bandwidth. In any case, the Internet market wasn’t big enough. It was just a promotional tool for us. I wasn’t too ambitious. But when the bandwidth costs started to drop I began to think how we could use the best features of the Internet in a way that would really serve the classical music consumer.

  Downloads were a bit of a conundrum for the classical consumer because of the importance of sound quality. For many listeners high fidelity was essential, and where dial-up predominated and speed of delivery was slow, low-quality sound was inevitable. It was less of a problem for a three-minute pop song, but a real obstacle for a Beethoven symphony. This was compounded by the average classical consumer’s reluctance to accept the concept of keeping a classical music collection on the computer, which was connected to only low-quality speakers. So Heymann came up with a totally different concept: streaming classical music to subscribers.

  I started with the Naxos Music Library, the NML, in 2002. The concept was that we would sell access to this collection on a subscription basis. I thought there would be a wide range of users. There was the academic market – universities, schools, libraries of all kinds. They needed to listen for study purposes. This sometimes means listening to a whole work, but often it means listening to a particular movement or section. I knew that all the booklet notes we had spent so much time and money on – which at the beginning of Naxos were considered unnecessary for a budget label! – would be very welcome. So we not only digitised the recordings, but the notes and the covers as well. I wanted to ensure that anyone who accessed our recordings online would get the same as those who bought the CDs. I wanted to make the subscription worthwhile.

  So the academic world was our first target: they would save considerable sums in not having to buy CDs that went missing or were broken. Then there would be individual subscribers; and professional subscribers, such as people in the classical music business who needed quick and accurate access to classical information of this kind. I also wondered about upmarket hotels and other public places, for them either to stream music centrally or offer a wide choice of music to guests in their own rooms.

  Turning this conception into reality was a huge task and involved huge amounts of investment. Most of the senior executives within Naxos thought that Heymann had been bitten by a digital bug – and they were right! The distributors could all see that their business was based on CD sales, and either they couldn’t envisage how to make money from this digital pathway or they couldn’t be bothered. Scepticism predominated. Heymann used all his persuasive powers to explain that this was the future, and that if they wanted to be alive and kicking after the first decade of the twenty-first century they had to change and invest in new areas. He was pro
ved absolutely right, but it was an uphill battle for him. At every MIDEM meeting from 2002 he would organise seminars for his distributors on selling digital music. It was slightly easier with his own Naxos-owned distribution companies (although even there he struggled to engender change); but most others were either reluctant to shift or did not even understand the concept. What was curious to note was that most of them were far younger than Heymann, who was, at that time, approaching seventy.

  I explained that it was necessary to set up new departments to sell the Naxos Music Library and the concept of digital delivery to these new markets. They had to think outside the box if they wanted to be around in the future. And of course, I needed them to succeed because otherwise the NML would fail. There was progress in the US, then in the UK, and, slowly, the awareness grew.

  It was a particularly tough call for the independent distributors in the smaller markets – often classical enthusiasts who were very traditional in their approach to selling classical music. Their companies did not have the infrastructure to allow them easily to expand.

  At the same time, Heymann was trying to persuade other labels to come on board. Naxos was, by 2002, a large collection but it was by no means comprehensive, and to attract subscribers he needed many more labels.

  I wanted to bring in all the classical labels so that subscribers would have not only one performance of a work but many, and could compare. I wanted to provide all the information about each work – its playing length, the orchestration, the background history, the performers, everything – so that the service would become an incredibly useful asset for everyone interested in classical music. And ultimately my ambition was to have in the library at least one recording of every work ever recorded.

  Bringing other labels on board was not easy. Few could understand the concept: why was it necessary? Heymann would forget that he was in the vanguard – that his vision of instant access to all classical music was a puzzling or threatening concept for many. There was also a residual suspicion of Naxos. This new idea meant that a label would have to give its entire catalogue – its family jewels – to Naxos for uploading to a network that could be accessed by everyone in the world! Would people just copy and pirate the recordings? Internet piracy was already a hot topic. Would Heymann exploit the material? Did he have horns? Meanwhile, Heymann himself had no idea whether the library would be a commercial success or how much money the labels would make from the service.

  The first label to join the Naxos Music Library was the Swedish classical label BIS, run by Robert von Bahr. He had been one of the first to give distribution to Naxos in various territories, including the UK and Scandinavia, and he paved the way for others on the NML. His experience with Naxos had allowed him to trust the company.

  While Heymann was getting other labels to join he was also adding new features to the service; his IT department was now led by former warehouse manager Mr S.K. Wong.

  We had been constantly upgrading from the start of our Internet platform, but that is the nature of a venture like this. At the beginning of naxos.com, when it was actually hnh.com, we delivered music at 20 kbps (the sound was acceptable then, but it’s not now!) using RealPlayer, which was the standard at the time. That was 1996. Then Windows Media became the standard. When the NML came along we offered our recordings at 20, 64 and 128 kbps, allowing users to access the service according to the bandwidth available to them: many places were still limited to dial-up speed. All this required a considerable amount of back-room activity and an even greater investment in hardware: offering all the content in three different formats meant storing it in these formats as well. But this had an unexpected bonus. A year after the launch of the NML, iTunes started [in 2003], and we could immediately offer them our whole catalogue – digitised with all the metadata in place. We were the first classical label to have its whole catalogue on iTunes, and even today I think they still have a soft spot for us.

  Turning Naxos into a digital service provider was not as easy as it sounds. There were innumerable problems with servers, files and data, and the Internet was not as stable as it is today.

  At times it was a major headache. There are many good reasons for not being ahead of the game, especially when it comes to technology. You make all the mistakes that those following can learn from. And the consumers were on a big learning curve themselves. Customer service was very busy. But it did put us in the forefront of the classical digital medium. Of course, there were competitors – things were moving very quickly. There was something called classical.com, which was UK-based and had actually started before naxos.com. Initially it was a battle for the US market, but they were not very strong outside the US and did not have the same focus as we had. We could also keep investing in our service because we had a strong physical business, and until 2003 the profit from Bose was subsidising Naxos. These days we don’t really have a serious competitor for our subscription services.

  More labels began to join, especially when it became clear that fears of the NML affecting CD sales were not being realised. There was a market trend towards digital sales, which was inevitable; but the death of the CD would take a lot longer than pundits were predicting. In the meantime the NML was an additional source of revenue for labels. Even Chandos, the independent UK label that had developed its own competent digital web presence, was happy to sign up.

  The ambition was, and remains, to create a place where you can find every work ever recorded; and we are getting pretty close, with over 50,000 CDs and 750,000 tracks. I found it interesting that as late as 2010 not one ‘major’ label had signed up to the NML. They were on iTunes, eMusic and other digital platforms, but these classical majors would not come to the NML. Yet speak to any music student in any country and it is very likely that they have personal experience of it.

  By 2005 Naxos had became a huge operation, beyond the scope of its headquarters in Kowloon, and it moved into new offices in Cyberport. This was, as its name suggests, a new development in Hong Kong that aimed to attract IT companies. All the buildings were wired for the twenty-first century and had a first-class technical infrastructure. Naxos, however, remained primarily a classical record company and a specialist Internet team was required to cope with the increasing number of technical changes being prompted by users’ demands. In 2007 the company was joined by Riyaz Moorani, a Canadian who had sold his Internet hotel sales company and was looking for a new challenge. He was an expert in the use of the Internet as a selling tool, and he set up a new IT operation in Manila, where he was based; it eventually grew to sixty people, including musicologists, systems analysts, developers and web designers. It was an example of Heymann’s international frame of reference that he could see the advantages in moving to Manila, where economy of pay transects with English as an official language. It could have been India, but the Philippines was closer to Hong Kong. The NML database was completely reconstructed, the interface was redesigned to make it more consumer-friendly, and many, many more elements were added.

  Then in 2007 came classicsonline.com, a site with the specific purpose of selling downloads (rather than a subscription for streaming). It was given a generic name so that the general classical consumer would not think it offered only Naxos recordings: all the fifty or so independent labels that had so far joined the NML were included. These files were also free of DRM (digital rights management) as they were in the MP3 format without any kind of copyright protection. In this issue – which was highly controversial at the time – Heymann was once again a classical pioneer.

  Around the turn of the millennium, as the download era began to grow rapidly, a philosophical and commercial divide opened between those labels who insisted on copy protection and those who felt it was no longer practical. The issue was initially brought into the main arena by various e-tailers such as iTunes and eMusic. Heymann was quite clear where Naxos, and recorded music as a whole, had to go.

  The recording industry was trying to shut the stable door after the horse had
bolted. When the CD first came on the market, the cost of building manufacturing plants was so enormous that everyone, including myself, thought that finally we will get rid of piracy. As a result nobody thought, or made a priority, of adding copy protection to the CD. Then CD factories became much cheaper and smaller, so that today you can get an automated production line into a relatively small room. Stick a disc in the front and a CD comes out the other side! The CD pirates found it was incredibly easy to make a perfect copy of perfect masters, and the legitimate industry realised that copy protection should have been included. When downloads came, the industry thought that now was the time to add it. But the consumer had become accustomed to doing with his CDs what he wanted, and he didn’t accept that. Sites to share music across the Internet made piracy relatively easy.

  My view from the very beginning was this: if people wanted to copy CDs they could copy CDs very easily, so what was the point of adding copy protection to downloads? We had to approach sales from a different point of view. Of course, I had certain advantages which enabled me to be quite bullish about this. First of all, I had the benefit of not being hampered by a corporate legal apparatus, by big star artists demanding copy protection because they had suffered from no copy protection on the CDs. Also, as Naxos was sold at budget price there was probably less incentive for people to download a file that was not of the same quality as the CD and then copy it indiscriminately. The CDs were so cheap that Naxos didn’t attract the attention of pirates. It was certainly more challenging for pop music, with shorter playing length and therefore smaller files. By the time the industry introduced the DVD it had learned the lesson: DVDs came with copy protection from the very beginning, so people were used to it.