Of growing importance in the opening years of the new millennium was classical music video. Heymann had signed Arthaus Musik to a worldwide distribution deal, convinced that the main sales for classical video tapes and DVDs would be through classical music outlets rather than the video shops, as was generally presumed at the time. He was proved right, and Anderson developed Select into the leading supplier of classical music DVDs, including those of TDK, Opus Arte, The Christopher Nupen Films and EuroArts.
Independent labels came to realise that their fears of second-class treatment within Select would not materialise. In fact there were many advantages to being with a Naxos company, for as a label it was also having to deal first-hand with the dramatic changes that were taking place in the CD world. Many were deeply worried by the growth of downloads, witnessing the effect that not only piracy but also legitimate downloads were having in the pop and rock worlds. Would CDs be around by the second decade of the twenty-first century?
Running the Naxos labels in the UK while also representing many others, Anderson was perfectly placed to anticipate new developments. Perhaps unexpectedly it was the Naxos policy worldwide to involve the distributed labels in its plans for making the most of the new world – and a new world it certainly was. The Naxos label itself was actually hit hard by the drop of CD sales.
Anderson explains: ‘Up to 2005 Naxos was prominent in retail and was often the only classical range in chains such as Andys, MVC, WH Smith and pop-dominated Our Price. However, from 2005 onwards most of these retailers disappeared from the high street. A large proportion of sales migrated from bricks-and-mortar stores to e-tailers, most notably Amazon but also classical specialists such as Presto and MDC. It happened quite rapidly. This shift has actually deprived Naxos of one of its distinct advantages: in-store visibility. The Naxos White Wall became a much rarer sight.’ The ‘impulse purchase’ phenomenon prompted by the price, which even at £5.99 (from 2005) allowed buyers to experiment with an unfamiliar composer, work or performance, was disappearing. And with e-tailers making special offers on full-price labels as a matter of course, the famous Naxos price advantage became less distinct. Fortunately the label had reinvented itself by becoming the premier catalogue label for classical collectors, providing specialist repertoire as well as the core works, so it could compete on equal terms with any of the full-price labels. By 2010 it was the most prolific classical label, its budget price purely incidental.
The first decade of the twenty-first century saw Naxos take a leading role in digital distribution through the development of its own digital platforms and services. Heymann’s foresight in pouring funds into the Naxos Music Library and the download store ClassicsOnline not only gave a future to Naxos as the premier specialist digital provider but paradoxically provided a lifeline to classical labels everywhere. In 2004 Select began selling Naxos Music Library subscriptions to educational establishments throughout the UK. By the end of the decade most music schools and music departments in the tertiary sector had signed up, as well as many music departments of secondary schools in both the state and private sectors. One of the crucial factors in the library’s success is that it offers the catalogues of many other independent labels in addition to its own. It has become a resource unmatched by any other worldwide.
In the twenty years since Select Music was founded, and put Naxos into the driving seat of its own distribution in the UK, it has secured a position as the leading classical distributor in one of the most important classical music markets. It did this with particular success, joining with its main competitors – the finest of other independent labels – to present the greater efficiency of a combined service for the trade. This left the key competition to take place at the retail level. The approach has many benefits for individual labels and certainly for the Naxos labels themselves, which are not at the mercy of changeable distributors concerned only with the health of the bottom line. It is interesting to note that what has worked so well in the distribution of physical product is now being extended to the digital world.
United States: Naxos of America
Of all the major territories in which Naxos established itself, the United States proved the most difficult. It was a chequered first decade, when Naxos was initially distributed by various independent distributors and a licensee, until Heymann, following the UK success, decided that any long term future in the US would depend upon the formation of his own company. Begun in 1991 from offices in New Jersey, it ran for a few years, seemingly fulfilling the function of distributing the growing catalogue in classical circles. Nevertheless it failed to generate positive critical attention for Naxos and looked as if it would never break even, let alone make a profit.
In 1997 a drastic change was made. Two new, young but experienced music professionals, Jim Sturgeon and Jim Selby, were brought in with a brief to start afresh. Neither was a classical specialist, but both knew the record industry and they could see that the company needed some serious improvements in the logistics of CD distribution as well as better placement in the market. They started by taking the drastic step of moving Naxos of America to Franklin, Tennessee, which they felt to be a far more sensible location for a CD label, albeit classical. Franklin neighbours Nashville, which is a music town; and being situated in the centre of the US facilitated distribution of product. ‘Within one day’s drive we could reach 50 per cent of the population,’ explains Selby. The office opened in 1998 despite some scepticism within Naxos, the Nashville environs being known far more for their country music than their classical. Actually there was the Nashville Symphony and Kenneth Schermerhorn, a conductor with whom Heymann had already worked in Hong Kong when Schermerhorn was the musical director of the Hong Kong Philharmonic Orchestra. Furthermore, a new concert hall that would be ideal for recording was about to be built in Nashville: it was a fortunate coincidence that was to bear the fruit of many recordings in the coming years.
When Naxos of America opened its doors in Franklin, says Selby (now CEO), it represented mostly Heymann’s labels: Naxos, Marco Polo, Naxos AudioBooks, as well as CPO and the affiliated Danish label Dacapo. It had an annual turnover of around $3.5 million. The target was to improve the logistics dramatically, re-establish relationships with retailers, raise the profile of the labels (especially Naxos), and increase the turnover. Ten years on, despite the most dramatic changes in market circumstances ever experienced by the music industry – the spread of digital piracy and digital sales, the consequent collapse of traditional retail outlets, and other factors – Naxos of America was becoming the leading classical distributor in the country, with a turnover of nearly $20 million, a strong reputation for its own American label, and a handsome collection of GRAMMY Awards to boot.
This extraordinary achievement was down to some far-sighted decisions made by Heymann in Hong Kong and developed by a relatively youthful US management team, au fait with technology; and the ability to innovate, which proved as important in classical music as it was in more popular genres.
Two new areas of growth emerged in the early years in Franklin. The first was commercial exploitation. ‘Klaus started really pushing the concept of licensing music from the Naxos catalogue,’ recalls Selby. It proved to be an area of rapid expansion, particularly because of Heymann’s foresight when he set up the label in insisting that Naxos must own all the rights to its recordings. Music is constantly being licensed and used in innumerable ways: in films, television, premium giveaways, telephone switchboards, CD compilations for babies and even doctors’ and dentists’ surgeries. Licensing can be complicated, with many rights needing to be cleared – but not for Naxos. It became well known as a one-stop source for classical music. This developed quickly into a business that approached $1 million a year and continued to expand.
The second area of growth was musical. In 1999 Naxos of America released the first titles in its ‘American Classics’ series; these launched a regular release programme that presented music from all periods but specifically set
out to champion the classical music of the continent. The ‘American Classics’ project was an ambitious attempt to establish Naxos in the US market and simultaneously bring American classical music to the world market. With Heymann aided by the producers and agents Victor and Marina Ledin and an advisory board of eminent American musicologists, the series went from strength to strength. Suddenly critics and writers were noticing the Naxos label for its musical offerings. Individual projects did not always meet with commercial success: there were quite a few recordings that did not pay their way, and in fact will never recoup their costs. But overall the series was profitable, and it was so evidently a service to American music that it reaped other benefits too. ‘American Classics’ put Naxos on the map in a way that budget offers and lifestyle compilations could never have done.
At the same time as there was new life in Naxos of America, market forces were beginning to challenge record labels. In 2004 Tower Records, with its 130 large shops around the country, went into Chapter 11, the start of its road to bankruptcy and closure. This had been signalled by the ever-growing size of its returns. A few large returns from Tower, a major account for Naxos of America, could prove crippling. Too great a dependence on Tower and Borders (another company that was showing early signs of suffering the bumpy retail road ahead) was extremely risky, yet paradoxically these were the easiest and most powerful routes to the core classical buyers. In common with all record labels, Naxos of America learned to dread the pallets of product arriving from these big retailers. It was also frustrating to find only too often that many of the boxes were still taped up, indicating that the CDs had never even made it onto the shop shelves: they had simply moved from the Naxos warehouse to the retailer’s warehouse and back to Naxos again. The whole industry was creaking under business practices that were not sustainable for anyone, especially in this ever-changing environment. In 2006 Tower Records folded.
In the midst of this, Naxos of America was not only surviving but expanding, developing what were termed ‘non-traditional outlets’. The licensing division was flourishing. In particular, in 2005, it moved strongly into the educational sector, working with important publishers such as W.W. Norton, Prentice Hall and McGraw Hill: it provided Naxos recordings to accompany text books and even went on to act as project manager for new text books, bringing in other companies as well. This was to prove an excellent revenue stream as multiple reprints brought in regular income.
Naxos of America also contributed to, and benefitted from, the success of the digital services. What had been regarded as a possible coup de grâce for the music industry was, by 2005, a reliable and growing source of revenue. However, the omens when digital downloads began to take off were not good. At the end of the twentieth century, digital piracy was beginning to have a serious effect on music sales and Selby was among those who wondered whether the recording industry would survive it. He was in his early thirties and familiar with technology – he knew how to download music and was aware of all the pirate sites – and he was concerned that this would be the end of the commercial viability of music. But Heymann’s percipience and Selby’s active interest in music in digital form was to give Naxos of America a lead over all its classical rivals.
It started in Hong Kong. By the millennium, naxos.com, based and maintained there, was already one of the most comprehensive classical record sites. As far back as 1996 Heymann had ensured that the complete back catalogues of Naxos and Marco Polo as well as the new releases were transferred into digital form, with all the necessary metadata. The complete recordings of the two labels were made available for streaming at 20 kbps, track by track and free of charge, for promotional purposes. In 2003 Apple launched its game-changer iTunes. Albeit for the US only, it was a stunning development. It was dominated by pop music but Naxos was the only classical label offering a broad range of repertoire: it had already made all its audio available digitally, so its entire catalogue had been relatively easy for iTunes to ingest. It was encouraging to see that customers of iTunes were eager to try out classical music in digital form. Naxos’s prominent presence within iTunes, combined with its status as a well-known brand name in classical music, meant that it became the bestselling classical label in the store.
The growth of digital sales, Selby remembers, was staggering. ‘Our first royalty cheque was $3,500, which was the equivalent profit of thousands of CDs – but for very little work. And no returns! And every month was better than the next. In those early days it grew 100 per cent month over month.’
Even though Naxos of America had all the digital files, a considerable amount of work was needed to meet the iTunes specifications. Up to this point all the digitisation within the Naxos group had taken place in Hong Kong, where naxos.com was based. With the emergence of iTunes and other US-based reputable digital outlets, it became inevitable that Naxos of America would need its own technical department to serve these digital service providers (DSPs). It was not as simple as handing over a hard drive with all the music on it: each DSP required a slightly different delivery spec. A new division was set up in Naxos of America, giving the company an important place in Naxos’s digital structure. It rapidly became clear that this kind of digital-conversion-and-delivery service would be required by some of the third-party labels that Naxos of America was fast attracting for CD distribution: by 2005 it was the physical distributor for Analekta, CBC Records, Naïve and Pentatone Classics. The company was now in a position to offer this digital service to its labels, which was seen by all as a valuable part of a distributor’s role in a future of declining CD sales.
Another major digital development in the early years of the twenty-first century was the label’s own Naxos Music Library. This highly innovative subscription-based streaming service was being taken up by educational institutions all over the US, further enhancing the credibility of Naxos. Its reputation both as a serious classical music company and as a leading innovator in technology was confirmed. So just as Tower Records and other US retailers were under immense pressure, Naxos was already diversifying. The CD retail business remained absolutely key to the company’s existence, and there were tense times as retailers went to the wall whilst holding Naxos stock (which was not always easy to retrieve); but Naxos of America was already far down the road in preparing alternative ways of reaching its customers.
By 2005 Naxos of America had a turnover of $16.5 million, $6 million of which came from physical CD sales. Another major slice came from its DVD wing. Over the previous five years, following Heymann’s first foray into taking on DVD labels for international distribution, Naxos of America had become the leading distributor of classical DVDs in the US. It had Arthaus Musik, Opus Arte, TDK DVD, EuroArts and others. In fact there were one or two years when the DVD revenue exceeded the CD revenue.
Although the bricks-and-mortar retail structure of the US was collapsing, Selby was convinced that the core classical music buyers of CDs would still exist and that it was only a matter of finding where they would surface. He presumed that it would be on the Internet, and he began gearing his marketing operation towards Internet activity in the form of fan sites, blog sites and forums. NaxosDirect, a website offering directly to the consumer all the labels distributed by Naxos of America, was created. At the same time, Amazon, with its efficient services, was experiencing extraordinary growth. Amazon orders now flow in to Naxos of America every ten minutes via any one of six distribution centres around the US. Whereas in the past there could be thousands of copies of any one title sitting in stores (or unpacked in their warehouses!) around the country, fewer retail outlets now mean less excess stock – though this in turn raises other logistical challenges, such as shipping a large number of relatively small orders without any delay.
All the time that these commercial changes were taking place, the status of Naxos as a classical label was improving. ‘American Classics’ had made an impression in 1999, but it was relatively muted while the recordings were made in Slovakia. In 2000 Naxos issued
Hanson’s Symphony No. 1 ‘Nordic’ and Merry Mount Suite, played by the Nashville Symphony under Kenneth Schermerhorn, and this immediately opened doors to unreserved critical acclaim. Many more recordings with the orchestra followed, including the Second Symphony of Ives, orchestral works by Chadwick, and Bernstein’s West Side Story. Naxos increased considerably its roster of American artists to include other leading musicians, notably Marin Alsop and Leonard Slatkin.
The great and continuing success story of the GRAMMY Awards ensued. The first GRAMMY won by Naxos, in 2003, was Best Traditional World Music Album for Sacred Tibetan Chant sung by the monks of Sherab Ling Monastery; the recording was made by the Naxos World label, which had been started by Naxos of America. It was 2006 that saw the first classical GRAMMYs, when William Bolcom’s Songs of Innocence and of Experience, conducted by Leonard Slatkin, won four of them. Sealing the ‘respectability’ of the budget label, it was a major coup for Naxos that resulted in a stronger profile and greater sales. In 2008 another title in the ‘American Classics’ series, Joan Tower’s Made in America, Tambor and Concerto for Orchestra, won three GRAMMYs. In 2011 there was a notable success when five GRAMMY Awards came to Naxos, three for the recording of Michael Daugherty’s Deus ex Machina and Metropolis Symphony played by the Nashville Symphony under Giancarlo Guerrero: Best Orchestral Performance, Best Engineered Classical Album and Best Classical Contemporary Composition (for Deus ex Machina, with pianist Terrence Wilson). The Parker Quartet, a young, talented New England ensemble, received its GRAMMY for Ligeti’s String Quartets Nos. 1 and 2; and Paul Jacobs’s recording of Messiaen’s Livre du Saint-Sacrement won the first GRAMMY ever awarded to a solo organ recital. To date Naxos has received sixteen GRAMMY Awards, including a ‘Latin’ GRAMMY for piano music by Villa-Lobos.
The Story of Naxos Page 38