|Trends in the Record Business as Seen from the Classical Perspective
| Lecture given by Jame Ginsburg, Founder and President of Cedille Records
at The Changing Business and Legal Landscape of the Music Industry, Centenniel event presented by DePaul University
January 31, 2013
I call the current state of the recording industry the second digital revolution, to differentiate it from the first — the initial advent of digital recording — which was a pure boon to the industry. Until now, the technological upgrades the industry has experienced roughly every 30 years — from wax cylinders to 78s, from 78s to LPs, from LPs to CDs — these innovations have always provided a boost to record companies' bottom lines. For the classical side in particular, they have allowed the major labels to re-issue and resell older recordings — what we call back catalog — to the same customers who purchased them in the older medium, as well as to a new generation of listeners.
Panelists and Moderators, From left to right: panelist Thomas Leavens, panelist Jane Ginsburg, moderator Margit Livingston, panelist James Ginsburg, moderator Alan Salzenstein
This was particularly true of the transfer from LPs to CDs, since LPs, which tend to wear down with each playing, were now being replaced by a medium that promised zero degradation in fidelity, and that was far more convenient, too. And digital recording techniques allowed producers to capture and reproduce in the final product much more of the wide dynamic range of classical music than was possible with previous recording technologies. These innovations pretty much saved the classical record industry, which many had given up for dead in the late 70s–early 80s, before the first compact discs and commercial CD players went on the market in October 1982.
The second digital revolution was the mass realization that physical media, such as compact discs, were not required for listening to, storing, or sharing music. This, of course, started in earnest with the rise of Napster in 1999. Napster didn't really affect the classical side of the business, but the major classical labels took a big hit a decade earlier from a very different source. After a few years of watching the big labels sell classical compact discs like hotcakes for close to $20 each, a German businessman in Hong Kong named Klaus Heymann figured out that he could make recordings much less expensively using soloists eager to make a name for themselves — including his own Japanese violinist wife — and orchestras from the newly liberated countries of Eastern Europe. On a label named Naxos, Heymann began offering the same standard repertory as the major labels on CDs priced at about one-third of what theirs cost. And it turned out that for this big a difference in price, customers were perfectly happy getting their Beethoven from the Slovak Philharmonic instead of the Berlin Philharmonic.
Another thing hurting the major classical labels with the big-name artists at this time was the fact that CDs didn't deteriorate. Initially this was a great boon to their business, but a decade later customers were realizing that they didn't absolutely have to replace older recordings of their favorite works with new versions anymore. So the majors were losing a good deal of their accustomed repeat business, and now this upstart budget label was swiping all the new customers. Heymann has said in interviews that he expected to get a few years out of his budget line and then the classical majors would wise up, drop their prices, and put him out of business. But they never did; and Naxos went on to broaden its repertory and selection of artists — including artists the major labels started dropping — to become the largest classical label in the world.
At the same time that Naxos was severely damaging the business model of the major classical labels, independent labels and imports were beginning to gain a foothold in the market. These labels were, for the most part, not trying to compete on the same standard repertory turf as Naxos and the majors, but instead carving out their own special niches. At this point, serious classical consumers had all the indestructible copies of the Mozart and Beethoven symphonies they needed and were interested in seeing what other music was out there.
It was into this world that Cedille Records entered, in 1989, with a recording of Russian Piano Music — including obscure works by Anatoli Lyadov and Nicolai Medtner — music performed by a wonderful Russian-emigrépianist based here at DePaul, named Dmitry Paperno. Cedille immediately established itself as Chicago's first classical label since Mercury Living Presence in the 1950s and the only label devoted to recording the wealth of musical talent here, that was being overlooked by other American classical labels, the great majority of which were — and still are — based in New York or on the West Coast.
While this proved a great and unique artistic model from the standpoint of musicians and collectors, it wasn't necessarily a profitable one. The truth is (with the exception of a rare hit such as The Three Tenors in 1990), the classical record business has not been a profit-making one for many decades. Classical lines were seen as bringing "prestige" to companies that made their money on the pop side. Columbia Records, for years the home of top artists such as Leonard Bernstein and Vladimir Horowitz, could only make the classical books balance by counting its Broadway hits as "classical." Solo Luminus, which acquired the acclaimed Dorian Records catalog in 2005, is bankrolled by the founders of Cisco Systems. Many classical labels today operate by having musicians pay them to put out the artists' recordings, rather than paying the artists.
After a few years of building Cedille Records' reputation with recordings by wonderful Chicago artists such as Paperno, University of Chicago-based composer and pianist Easley Blackwood, keyboardist extraordinaire David Schrader, and others, I decided to follow the model of New World Records — a label devoted to American composers — and make Cedille officially a not-for-profit label. I realized that our unique, locally focused musical mission made it possible for us to raise funds for our overall purpose as well as for specific projects. This enabled Cedille to expand from the solo keyboard and small chamber music recordings we began with, and go on to record all genres of classical music including symphonies, choral works, and operas.
While our not-for-profit status has insulated Cedille Records somewhat, we still count on sales for a significant portion of our income; so we are certainly not immune from industry trends, such as the evolution from physical sales to downloads to subscription streaming services. In previous revolutions, including what I termed the first digital revolution from LPs to CDs, classical, being an audiophile format, usually led the way. For the current change, with its mostly older demographic, the classical side of the industry has lagged behind, and had the advantage of watching the future unfold on the pop side as we try to figure out how to deal with these trends.
So, while download sales surpassed physical sales industry-wide in 2011, in classical the CD is still king. There is much speculation about how long CDs will remain viable. Klaus Heymann of Naxos says he forecasts the near-demise of physical product within five years. Yet he recently invested a lot of money in a warehouse in Munich, the sole purpose of which is to act as a central distribution point for shipping CDs and DVDs around the world.
The gradual evolution from physical product to downloads is not necessarily problematic for classical recordings and even presents some new opportunities. Each of the previous approximately every-30-years revolutions in music delivery has resulted in a gain in both convenience and sound quality. So far, in the current revolution, the huge increase in convenience has been accompanied by a drop in fidelity, from CD to MP3. But that is changing now, and here classical is among the leaders. New "lossless" download formats such as FLAC — that's F.L.A.C. for Free Lossless Audio Codec — these formats allow people to purchase downloads in not just CD quality but in even better than CD quality sound.
When CDs were invented, they were set to carry music at an audio sample rate of 44.1 kHz at 16-bit resolution, which comported with how early digital recording devices captured audio. But the professional recording standard today is a 96kHz sample rate at 24-bit resolution; so when we make a CD, we have to dither down from the higher rates we recorded and edited in, down to what the CD can hold. But there is no such restriction with downloads. So, for our most recent releases, we offer FLAC downloads on the Cedille website (cedillerecords.org) in what we call "studio quality" — that is, no diminution in digital quality from the original recording. The best part for us is that we can charge a premium price for the higher-resolution FLACs, and they've quickly become equally popular with our lower priced MP3 downloads among our direct customers.
Of course, many consumers' preference to download individual tracks rather than full albums does impact record companies' bottom lines. This is less of a problem for classical than most other formats, however, because if you want a piece or movement that is over 10 minutes long, as is the case with much classical music, then you have to pay for the whole album. Even with so-called "recital" albums, that tend toward shorter tracks, the artists who record for Cedille strive to create coherent programs that are more than the sum of their individual parts, so that people will want to hear the whole album, even in an age when they don't have to.
What is potentially more concerning for labels' business models, including increasingly for classical labels, is that more and more people are not purchasing music directly at all, physically or otherwise, but turning to large music databases such as Spotify and streaming whatever they want to hear for a monthly subscription fee — a fee that on some sites varies depending on the sound quality the consumer wants. While labels get a cut of these fees — the size of which depending on how often consumers access the particular label's tracks — the income stream from streaming is considerably less than it is from actually selling one's albums or tracks.
While these trends continue to develop, smaller labels like Cedille — which obviously can't affect them — take an "all of the above" approach, trying to access and maximize as many income sources as possible. This requires a good distributor or network of distributors. Distribution used to be one of Cedille's biggest problems: we've had seven different U.S. distributors over the years. Since 2009, however, Cedille has been distributed by Naxos of America and by Naxos's foreign arms and distribution partners via Naxos Global Logistics — the warehouse in Munich I mentioned earlier. Cedille was also one of the first labels Naxos added (besides their own) to the Naxos Music Library streaming service for schools.
Because of the changes in the industry, Naxos, just as a record label, only breaks even today. It is as a distributor of other labels — both physical product and downloads, purveyor of its own streaming sites, aggressive licensor of music, creator of tablet-computer and mobile phone apps using its and its distributed labels' music, etc., etc.
— this is how the world's most successful classical record company makes money today. Klaus Heymann's favorite word now is "monetize" — that is, find any and every way he can to turn his and his distributed labels' content into cash. This includes aggressively policing unauthorized use of these labels' music on sites such as YouTube.
So what do labels — at least classical labels — still have to offer artists? In the "old" days, labels would nurture careers and help artists build a meaningful discography, not expecting every album to be a best-seller. That ceased to be true of the major classical labels quite some years ago as they became swallowed up by ever-larger corporate conglomerates. Today such labels are only interested in superstars who have already made it big. Artists who would once have attracted the interest of such labels now have to find other options. Some record for free or almost free for labels that can promise wide distribution, such as Naxos. Other artists and institutions have started their own labels such as ArtistLed, a label founded by Emerson Quartet cellist David Finkel and his wife, pianist Wu Han; or CSO Resound — the label on which the mighty Chicago Symphony Orchestra puts out its own recordings. (Long gone are the days when the CSO enjoyed exclusive contracts like the one it had with London/Decca Records under Sir George Solti.) As I mentioned earlier, many artists pay labels to put out their recordings, instead of the other way around. And, of course, artists today often record on many labels, since it is not worth signing an exclusive contract with any but the largest companies.
As the major classical labels have contracted, the good news is that many high-quality independent labels have sprung up to fill the void; and many artists, while not necessarily exclusive to these labels, have found a regular home with imprints such as Bridge Records, Harmonia Mundi, New World, Cantaloupe, and, I would immodestly add, Cedille. For many of the artists we record — musicians and ensembles such as violinists Rachel Barton Pine and Jennifer Koh, the Pacifica Quartet, and multi Grammy-winning ensemble eighth blackbird — would surely have had major labels breaking down their doors a few decades ago.
One reason labels are important to classical artists is that the quality of sound and production that comes with the best audiophile labels is important to both the artists, as a faithful reproduction of their ideal performance, and to classical consumers who expect high-quality sound. And the way classical music is recorded is very different from pop, which often involves isolating each player on his own mic, using a click track to keep everyone on the beat, and integrating the different players' sounds in later mixing sessions. With classical, you are usually recording actual performances, live or in the studio, and you need engineers and equipment capable of capturing that sound and the acoustic sound of the space, in the moment — and a producer able to make sure everything is properly covered and will fit together in editing without the benefit of stabilizers like a click track. Not too many artists have the resources or the know-how to put together a successful team like that on their own. So this is one way an established label can help. Artists without a label, or who create their own, often end up self-producing, which I consider an unfortunate use of time and effort for someone with the skill to actually play the music. And musicians are not always the best producers of their own work.
But the biggest benefit an artist gains from having her work represented on a respected label is that it helps her cut through the clutter — the sheer mass of classical product that, despite everything, is still being released into the market every month by a blistering array of labels and self-releasing artists and institutions. Being on a respected label gets artists noticed and reviewed, and such labels usually have reliable distribution channels and do a good job of promoting their recordings and the artists on them.
At Cedille, promoting the musicians we record is part of our charitable purpose — as the last part of our mission statement makes clear: "The extensive dissemination of [our] recordings is designed to bring [our] artists to a worldwide audience, thus enhancing their reputations and careers, and to benefit as great a listening audience as possible." I will conclude by mentioning a new way Cedille will be promoting our artists to as great a listening audience as possible, and that is a new radio show on Chicago classical station 98.7WFMT (and wfmt.com) Wednesday nights at 10 pm (central time), called Cedille Chicago Presents.