Newsweek: The Long Tail of Classical Music

Classical Music's Digital Comeback
Digital downloads over the Internet are helping purveyors of classical music stage an encore.
By Alexandra Seno
Newsweek International

July 30, 2007 issue - Classical music hardly seems like a growth business. We're forever reading about how concert audiences are graying, and new artists must flounce around fiddling in tank tops and platform heels to get attention (think Vanessa-Mae and the gals from Bond). In fact, classical music is doing a lot better than you might think. Although total sales in all music categories (on- and offline) fell 5 percent last year, classical sales grew by a whopping 22 percent. "When I talk to people in the industry, everyone is making money," says Klaus Heymann, chairman of Naxos, the world's biggest independent classical-music company, based in Hong Kong.

So why are Heymann and his peers singing such a different tune? Because classical retailers have been the best at exploiting the potential of online revenue. The biggest companies of the classical genre are now earning about 20 percent of sales from digital music, double or triple the average for other categories. This is a tremendous advantage for them, as selling music in the digital format can be twice as profitable as it is offline. The bottom line: while this may well be one of the worst years for music sales in general since charts were started in the 1960s, most classical labels expect revenue to continue to rise.

Classical music has proved to be ideal for the digital-music era. The complex and subtle nature of the recordings makes them tough to pirate; the classical customer is technologically savvy and more likely to buy in bulk, and the viral nature of the Net has allowed the music to be heard by new audiences, fueling overall sales. "The classical-music sector has done a very good job of maximizing the opportunity of the Internet," notes Mark Mulligan, a digital music analyst at Forrester Research.

It's all part of the "Long Tail" theory of cybercommerce, in which companies do a good business selling a few units of many, many things. Many other musical genres still follow the traditional "big hits" business model: 80 percent of revenue coming from 20 percent of inventory (that's why labels generally push a few artists very hard). Classical is different—consumers like to geek out on niche recordings, reveling in different versions of the same work or finding obscure versions of well-known pieces. Of the 146,031 tracks offered by Naxos online, about half have sold only 10 units or less. Still, that was enough to push digital revenues to a quarter of the company's total $82 million in sales for 2006, increasing profitability and helping offset a decline in offline sales. Heymann, a serious classical buff who started the company 20 years ago, says, "We could live very comfortably if from tomorrow we never sold another CD."

Indies like Naxos have been the most aggressive online, but even at Decca Label Group, the classical division of Universal, the world's largest music company, the digital-music business now contributes a fifth of sales. This is in part because illegal peer-to-peer file sharing hasn't hit classical music at all, a sharp contrast to the way it has decimated the pop industry. Low-quality tracks, which are often uploaded as smaller files on networks like LimeWire and Gnutella, aren't a problem when you want to listen to relatively banal stuff like Britney. But they don't cut the mustard for complex orchestral compositions by Bach—the nuances and length of such pieces make them much tougher to share via peer-to-peer. Classical also benefits from the fact that most users want to buy an entire album, rather than a single or two. They may also want to download the liner notes, background on the artists, the recording venue, the composer, etc. A pop song can be enjoyed for 99 cents, while a piece of classical music will likely cost more than $10.

Of course, none of this will save the recording industry from its larger problems. Classical-music sales are about a fourth the size of country's, and barely 10 percent of rock's. Still, the success of companies like Naxos have provided a case study in how to optimize profits with the Long Tail. "Joan Tower: Made in America," a Naxos recording of the U.S. composer's work conducted by Leonard Slatkin of the National Symphony Orchestra, held the No. 1 slot on last month's classical charts. That meant selling merely tens of thousands of copies, but given that online production and distribution costs are so low, the recording is on its way to becoming one of this year's most profitable items.

The lesson for labels is that prepackaging global pop stars isn't the only way to profitability, and the result might be more exposure for a broader number of artists and more diversity for consumers. EMI digitalized some of its rare historical recordings by the late opera great Maria Callas, and Decca is resurrecting long-extinct labels like Argo and L'Oiseau Lyre in downloadable format.

At the same time, some industry watchers believe digital might also help create more classical megastars. Witness the rise of Lang Lang, a young, spiky-haired Chinese pianist who topped iTunes' charts in mid-May. The fact that he ended up on iTunes' main page helped push sales of his new album, "Beethoven Piano Concertos Nos. 1 & 4," even further into the top 15 of the general iTunes charts. "When you see Lang Lang right next to Toby Keith and 50 Cent, all of those artists get a chance to reach the consumer," notes Christopher Roberts, chairman of Decca, which produced the album.

Meanwhile, labels are working on the next big digital challenge—how to let consumers search a really, really Long Tail of recordings. Mike McGuire, vice president of Gartner Industry Advisory Research in the United States, notes that virtually all systems of organizing online music data were "designed for three-minute pop or rock songs." Finding a particular piece of Spanish piano music composed between 1850 and 1920, or looking for multiple movements that add up to a single title requires more-sophisticated technology. That's something Naxos developed for its own businesses, but is far from the current standard of popular digital-music retailers. The upside of this is that the digital revolution has given smaller labels like Naxos yet another way to level the playing field—by selling or licensing their own proprietary technology. Niche search technology is one of the hottest areas of technology development at the moment. A classical label that can score on that front may find its audience—and its sales—get a lot, lot bigger.
© 2007 Newsweek, Inc.

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