How to Save the Classical Record Business

By Alison Ames

The oldest joke about the record business compares it with the sinking Titanic, “but the Titanic had a better band.” It may be truer than ever about the pop business, but surprisingly, the classical-record business (CRB) may be pulling away from the shipwreck in its own lifeboat, or so I’ve heard from several label executives, retailers, distributors, and other CRB insiders about the current status of the century-old industry.

The hit-driven pop business (to which many classical labels are joined at the corporate hip) is suffering from a laundry list of ills, some of them caused by its own inattention and belated reaction to the digital revolution. Youngsters flock to the Web and its illegal peer-to-peer file-sharing networks for pop hits and other mainstream phenomena; from most reports they have next-to-no interest in physical CDs. While classical CD sales have dropped precipitously, the typical (read “older”) customers appear to have adopted a waitand-see attitude toward the new technology for their musical “fix.” Some hesitate to download music from the Internet because they aren’t tech-savvy, or they disdain poor sound; many still prefer collecting actual discs and listening on high-quality equipment. But the CRB—like its jazz “sibling” and unlike the pop side—is a “long tail” business (author Chris Anderson’s term for companies selling small quantities of many items). The Internet definitely provides an improved environment for long tails. As a result (and here’s the good news), there is something of an upturn in the CRB after some very bad times. Classical CD sales in Germany, the leading international CRB market, were up significantly in the first half of 2009, according to Billboard.

One close observer of the industry says, “Some think nothing meaningful will come from the major labels—that the answers to the business’s problems will come from the smaller ones. But the old model says only rich companies have the means to develop or pay for the ideas and inventions that make for future success.”

The solution probably lies between the majors and the minors. Content providers—record companies, symphony orchestras, opera companies, but also individuals—are increasingly finding ways to record music and deliver it to classical customers.

Christopher Roberts, president of Universal Music Classics & Jazz, sees the CRB glass as half full. “We know that many of our customers want a product with packaging and liner notes, but the business must develop a high-quality download or streaming experience to fulfill the need of the serious classical listener. And yet I also believe there’s an environment for specialized retail in metropolitan areas. Tokyo still has a huge Tower Records, with a whole beautifully merchandised floor devoted to classical. I think that’s possible elsewhere as well.”

It may not be necessary to “save” the CRB now that Internet retailers have replaced most specialist stores. Executives of companies large and small readily admit to lowered expectations and have made necessary cutbacks in order to survive. Although companies like Amazon.com and ArkivMusic.com make the lion’s share of Internet sales of physical CDs, some big labels also sell their physical products and digital downloads through their own Web sites. Meanwhile, iTunes quietly does considerable classical business, but only in downloads.

Naxos, once an upstart, was an Internet pioneer and now accurately advertises itself as the “world’s leading classical music label,” perhaps proving that stars alone are no longer required to drive sales. The label’s Web sites offer sound bites and sell subscriptions for unlimited streaming. Naxos also sells high-quality downloads of its own labels, if not all the independent labels it distributes. Deutsche Grammophon, Nonesuch, and others give out short samples, selling “lossless downloads” (higher quality than mp3) and physical CDs. But four of the six major international labels of 20 years ago have become, effectively, minors: More than 20 years ago Sony Classical bought CBS Masterworks and, more recently, BMG (formerly RCA Red Seal), and is based in Berlin under a new president; Decca (formerly London in the U.S.) has been reorganized as a separate label within Deutsche Grammophon; the last Philips Classics recordings have been released, and the label’s artists will henceforth record on Decca. The only majors, besides Naxos, that continue with extensive recording programs are Deutsche Grammophon/Decca and EMI Classics/Virgin, which released 40-50 new productions each in 2009.

CDs on scores of labels from all over the world are distributed by Harmonia Mundi, Koch, Musical Heritage, Naxos, and other companies, many of which—in the vacuum left by the disappearance of brick-and-mortar stores—use the Internet to market and sell directly to the consumer. Some artists issue their recordings on their own labels: David Starobin (who led the charge with his Bridge label), Wu Han and David Finckel (ArtistLed, founded in 1989), Gil Shaham (Canary Classics), and Matt Haimovitz (Oxingale) among them. The Feidner Brothers, Eric and Jon, both Tower Records veterans, founded their online company, ArkivMusic.com, less than a decade ago, and now it’s probably second in classical retail to Amazon.com.

The Feidners even publish Listen, a bi-monthly classical magazine, in another vacuum left by the disappearance of long-dead High Fidelity, Stereo Review, and Opus. ArkivMusic sells real records, not downloads. It’s enlightening to browse the site and find, say, 95 recordings of music by Einojuhani Rautavaara among its thousands of entries. And the Feidners exclusively sell 7,000 additional out-of-print titles they’ve licensed from the repertoire owners, manufacturing the CDs with original covers and liner notes on an up-to-date “just in time” basis.

Although the Internet is picking up where retail left off—with physical sales as well as digital downloads—Eric Feidner reminds us of the history of the continuing decline in the selling of all prerecorded music. “When young people started getting pop music free online instead of buying CDs, the big pop labels went into a tailspin that affected everyone.” He points out that “classical is hard to separate from the bigger picture since it’s such a small percentage of the overall business.” But ArkivMusic sells only “long tail” recordings: classical, jazz, Broadway. “There are 90,000 titles in CRB warehouses, and every one of them is on our Web site. All we have to do is match the customer with inventory, and ArkivMusic is a growth business.” The retail crisis was, simply put, created by the major pop labels themselves, states Feidner. “When the big pop companies started putting expensively produced but lowpriced pop CDs into the mass merchandisers as loss leaders, Wal-Mart, Costco, and Best Buy started selling huge numbers of hits. Traditional retailers couldn’t compete and literally dropped dead.”

Feidner may be oversimplifying, but that’s really the way it works. His company has expanded each year, and he reports that the weak economy in the first half of 2009 has not appreciably
affected sales.

Costa Pilavachi, an old CRB hand formerly with Decca and EMI Classics, and now an artist manager, believes that “the classical labels embedded in the majors would be a lot more viable if they were allowed to become ‘independent,’ regardless of ownership, and pursue their own strategies vis-à-vis staffing, compensation, other overheads, manufacturing, pricing, and above all, distribution.” Moreover, the labels would benefit from distribution by indies like Naxos or Harmonia Mundi so they could “focus on developing their niche markets the way Naxos does. They could make partnership deals with artists, orchestras, and opera companies. This would enhance their digital operations, too.” (On the other hand, some owners of indie labels distributed by larger companies have complained of cash-flow problems and significantly less focus on their products than on the distributor’s principal label.) Pilavachi claims that classical labels are “currently represented in negotiations with companies like Nokia, Amazon, and Apple by pop digital executives who are not at all in tune with the realities of the classical business, and who include classics in overall deals not geared to the genre or its unique market.”

Pilavachi’s belief that indie labels have been suffering less than the majors may be borne out by the success of Harmonia Mundi USA. The label’s 51-year-old French parent company is still run by its founder, Bernard Coutaz; the U.S. operation, led by René Goiffon, distributes almost 50 additional labels. Goiffon says, “Our great advantage over the majors is that we can react faster than they can. If we find a new project we’d like to do, we can turn it around fast.” The company made “painful” personnel and budget cuts in mid-2008 and since then, according to Goiffon, has stopped losing ground. When the Silk Road Ensemble wanted to record on its own (without Yo-Yo Ma, Sony Classical’s popular star), “we were able to reach an agreement in only ten days to record them live in New York. That just can’t happen with the majors.” Goiffon maintains that “even with all the problems we’ve had, we’ve never questioned or compromised the quality of our products, and I think things are getting better.” Stile Antico, a young English vocal group, has three successful Harmonia Mundi CDs. “Since Stile Antico has held the number-one Billboard Classical Chart position for several weeks,” concludes Goiffon, “we must be doing something right.”

For most of the 20th century, orchestral music was the meat and potatoes of the record business, as of concert life. The majors have discontinued recording plans with most U.S. orchestras, but several of these have responded by cutting deals with their musicians and starting their own labels. The orchestras of San Francisco, Chicago, New York, and Boston are all in the CRB now, selling physical CDs via their Web sites and other retailing streams, as do many other orchestras. Vanessa Moss, a Chicago Symphony vice president, runs the orchestra’s label, “CSO ReSound,” which now sells eight titles via the CSO Web site as well as through Naxos in the U.S. She says it was a complicated development. “Everything about our recording process was reset—we now have a joint media committee that involves and benefits both players and management. Quarterly contract discussions help us adjust as we go.” She mentions future plans that include a Boulez project for the composer/conductor’s 85th birthday this year. “We decide on repertoire together instead of letting outside record labels decide; we listen together to takes, recordings, edits, and mixes, and it has had a positive effect on everything that we do.” She looks forward to the upgrading of the CSO Web site so that the label can broaden its offerings. “We’ve learned that streaming and lossless downloads can enhance our coverage of the market. The Boston Symphony offers them, and we’ll do so too, as soon as we’re Web-ready.”

The Berlin Philharmonic—still recording with EMI and sometimes DG—goes further: The BPO’s “Digital Concert Hall” began its first full online season last August, selling paid subscriptions and passes to individual “live” and archived concerts from virtual seats in its famous Philharmonie. The mighty Metropolitan Opera has taken over its own shop from the Met Guild, becoming a major retailer of vocal music. It’s also started selling its own DVD productions (in addition to licensing them to DG and EMI Classics). But the Met doesn’t yet sell virtual subscriptions. Will it be next?

Klaus Heymann, founder and peripatetic chief executive of Naxos, lives in Hong Kong and runs a global enterprise of staggering size and variety (the Naxos Web sites are an encyclopedia of riches). Heymann started his Marco Polo label in Hong Kong before launching Naxos as a budget label more than 20 years ago; he now distributes dozens of labels and owns the rights to so many recordings that he can license music to advertisers and film makers all over the world without contractual complications. His enormous spoken-word catalogue includes the complete works of Shakespeare and “The world’s greatest literature—many classic novels, plays and poetry, from medieval times to the twentieth century.” They’re all in the public domain, like the works of Beethoven and Mozart.

“There’s no need to ‘save’ Naxos,” says Heymann. “We had a very strong 2008 and the first seven months of 2009 have also been pretty good.” Naxos was the first record company to build an Internet presence, and Heymann proudly claims to have invested more in Web development than any of his competitors. Naxos has an international IT staff of 60 spread around the world; it developed all of the label’s sites in-house, including, he says, “online subscription services, download site, corporate marketing site, and Internet radio service. We’re also probably the biggest digital distributor of independent classical labels, and all our own labels are available digitally.”

Over the last century, technological advances in sound recording always benefited classical music, and the CRB has always led the pop side in marketing improved products. The Internet, ubiquitous mp3 files, and products like the iPod are a disturbing step backward in sound reproduction. And the magic word “digital” has not always equaled “quality”—most early digital didn’t sound all that great. Heymann may have had foresight to record digitally from day one, but the label’s sonic quality was distinctly indifferent at first. It wasn’t until he hired CBS and Decca veteran Paul Myers that Naxos productions could compete with the majors and the best of the minors.

While coping with the daunting technical changes in our digital age, the music business parked one important element on the back burner: star making. The old machinery that helped build classical careers—like newspaper reviews, classical radio, Community Concerts, and frequent appearances by classical stars on commercial TV—has vanished. But last year Universal Classics, independent of its pop masters, took a page from the pop playbook to provide a stronger link between an artist’s concert and recording careers. The label hired executives away from IMG Artists to create a new division managing artists and producing concerts. And when Bogdan Roscic became president of Sony Classical in April 2009, he quickly announced a 49 percent investment in DEAG, a German concert promoter. Then Universal retaliated by signing an agreement with a different concert promoter in Germany, First Classics GmbH, a “new network of top German classical music concert promoters.”

Everyone with whom I spoke agrees that optimizing work with digital media and the Internet is the only way to move forward. Roscic, for example, acknowledges that traditional classical buyers might prefer to avoid digital downloads, “but with the decline in traditional retail, there might not be a choice.”

Universal’s Christopher Roberts says that record companies and all the other content providers must work cooperatively with cable companies, Internet providers, and hardware manufacturers to create high-quality “technological convergence.” But the fact is, neither the high quality of sound and image nor cooperation among the various players has reached anything like convergence. Meanwhile, until that happens “things are quite good, even getting better,” says Roberts, pointing out the global interconnectedness of the business. He stresses “companies are more focused on maximizing their stake with strong artists and recordings. But we have to have global commitment from all parties to make this work.”

Alison Ames spent 25 years in the classical record business, most of them in a variety of assignments at Deutsche Grammophon, whose U.S. operation she directed during the boom times of early CD.