Event Details:
An intimate gathering of Stanford GSB alumni attended a breakfast presentation by Klaus Heymann, Founder of Naxos (www.naxos.com), one of the music industry’s most innovative companies and successful companies.

The “death of the music industry” has become “common knowledge”.  For years, the industry relied on a handful of blockbuster albums to cross-subsidize a cost-laden model of production, promotion and unsuccessful bets. In 1999, When Napster began, 24 albums sold more than 2 million copies in the US.  By 2011, only 3 albums sold more than 2 million copies.  In 1999, Tower Records dominated the retail industry and digital was a gleam in the consumer’s eye.  Today, iTunes is the laragest music retailer in the world.

Yet one “traditional label” beginning in the most traditional corner of the market – classical – has thrived, breaking the legacy business models of the industry, creating new avenues of profitability, creating new customer bases and new uses for its product, learning to sell to the “Long Tail” and finding opportunity in the initial pirate threats to the industry where others panicked.

That company is Naxos.  And, while you may have never heard of Naxos, you’ve certainly heard its music. Among the many business lines it has re-invented, it today is the world’s leading supplier of classical background music to the Hollywood film industry.

Beginning in a small industrial building in Kowloon in 1987, Naxos has grown to become the world’s most successful and largest classical label, dominating its segment.  Yet, along the way, Naxos has also proven itself to be the most creative innovator in the music label industry today, expanding from traditional CDs into the first “all you can eat” subscription buffets, creating interactive music libraries and educational tools, and, overall, echoing the title of a recent book on Naxos, “changing the classical recording industry….forever.”

The bedrock of Naxos’ success lay in having created corporate brand equity and the ability to extract related sustained profits in an industry where none existed previously.  Where artists and symphony “brands” had dominated among aficionados previously, for a vastly larger market of millions of ordinary consumers, Naxos became the reference brand, shifting the value equation and, along the way, lowering the price point at which these new consumers could access the product.

The roots of the Naxos story, like many, start with a combination of good fortune and great insight.  Good fortune that a young German, Klaus Heymann, found himself in Hong Kong in the late 60s, experiencing the city’s world-class low-cost manufacturing, first-hand.  Good fortune that Klaus, in turn, later distributed Bose and Revox sound equipment in the region, inspiring him to bring classical musicians to Hong Kong to support the brands.

And great insight, when the Berlin Wall fell, that Klaus’ love of classical music, knowledge of Hong Kong innovation and understanding of Central Europe made possible.  I.e., that the same Tchaikovsky piece recorded by the London Philharmonic at great expense and time, could now be produced by the equally competent Budapest or Warsaw Symphonies at a fraction of these same costs, with the resulting CD now able to be sold to a much larger customer base at perhaps a third of the legacy price, and with higher margins.

An industry change agent was born.

Yet if some of Naxos brand success is analogous to Penguin Classics in the book industry, another part of Naxos’ success echoes Apple.  Much as Apple focused in its early days on the educational market as a path to wider consumer acceptance, so Naxos has moved far from its original budget CD label roots.  And, much like McDonald’s, Naxos was an industry pioneer in appreciating the need for global standardization in simple artwork and jacket design, with consistent recording quality (focusing on the best music, not “big name” artists)  across genres and consistent pricing and customer value across markets.

Segment-wise, the Group has expanded into Jazz, world music, contemporary composers and books on music subjects.  Technically, it has expanded from physical CDs to first-ever “all you can eat subscription buffets”, allowing customers unfettered access to the entire 2,500 title and 70,000 CD Naxos catalogue representing virtually the entire existing classical CD repertoire.   Today, Naxos is the largest digital classical music distributor in the world, for not only its own content, but also that of over 200 other labels in the industry.  Later, as music education budgets shrank, Naxos shifted its attention there, too, building the world’s first interactive classical music encyclopedia.  Click on a work’s name on the page, and you will hear it played.  Click on the word “crescendo” and you will read its definition and hear an example.  Search, as a conductor, for 11 minutes of French cello music and, using these key words, you will pull up hundreds of examples in seconds.  More recently, Naxos has begun applying its skills to the creation of the Naxos Spoken World Library, with more than 5,000 recordings of such classics as Shakespeare, Dickens, Jane Austen and others.

How did a little label, headquartered in Hong Kong, far from the traditional European and American centers of classical music, come to dominate a notoriously fragmented market, and turn a low-margin prestige niche segment into a profitable, innovative business?  How did an industry outsider become the industry visionary and leader?  And, most important, where, in an ever-changing music and digital world, does Naxos go from here?

The Stanford GSB Chapter is privileged that Mr. Heymann has agreed to share his personal story as well as that of Naxos, and looks forward to your attendance at this special event.

Speaker’s Bio: Klaus Heymann, Founder, Naxos

Klaus Heymann was born in Germany and began his career as Export Advertising and Promotion Manager for Max Braun AG, the well-known manufacturer of audio equipment, household appliances, and electric shavers.

Klaus first came to Hong Kong in 1967 to start up the office of an American newspaper, The Overseas Weekly, having worked for the same paper in his native Frankfurst beginning in 1962. After two years with the Overseas Weekly in Hong Kong, Heymann started his own business, initially a direct-mail advertising company and, subsequently, a mail order firm for members of the U.S. Armed Forces serving in Vietnam. The mail order catalogue of Pacific Mail Order System, the company founded by Klaus Heymann, purveyed cameras, watches, and audio equipment, including Bose loudspeakers and Revox tape recorders. When the War in Vietnam came to an end, Heymann became the distributor for Hong Kong and China of Bose and Revox equipment and, soon after, also distributed the renowned Studer brand of studio recording equipment. In order to boost the sales of Revox and Bose products in Hong Kong, Heymann began to organise concerts of classical music sponsored by the two companies.

Not seeing their recordings in the HK stores when the classical artists visited, Heymann began  importing  several classical labels, among them Vox-Turnabout, Hungaroton, Supraphon, Opus, and others. His concerts’ success led to his joining the board of the then amateur Hong Kong Philharmonic Orchestra, becoming first “Chairman of the Fund Raising Committee” and then “Honorary General Manager”. Within a year of his joining the board, the Hong Kong Philharmonic had been transformed into a full-time professional orchestra. To boost the sales for his electronics equipment company, Heymann began organising concerts of classical music in Hong Kong sponsored by Bose and Revox. When visiting artists involved in the concerts discovered that their records could not be found in Hong Kong shops, record distribution became an additional enterprise of Heymann’s company.

When manufacturing costs of compact discs dropped in 1986, Klaus Heymann saw an opportunity for a budget-priced CD label offering classical CDs for the same price as LPs.  The first Naxos releases in 1987 were a success, and the young, independent label began to build its catalogue by recording standard repertoireth young or unknown artists. As the popularity of Naxos began to increase with little or no competition from the major labels, the company developed into a full-fledged classical label offering a full range of classical music to beginners and collectors, with little or no duplication of repertoire.

Today, Naxos is the world’s leading classical music label, with one of the largest and fastest growing catalogues of unduplicated repertoire available anywhere with state-of-the-art sound and consumer-friendly prices. The catalogue includes classical music CDs and DVDs as well other genres such as jazz, new age, educational and audiobooks.

Through his association with the orchestra Klaus Heymann met his future wife, the prodigious Japanese violinist Takako Nishizaki, who was asoloist with the Hong Kong Philharmonic during its first professional season. A year after their first encounter, the couple were married. Their son, “Henryk”, is named in honor of the Second Concerto by Henryk Wieniawski that Takako-performed at her first concert in Hong Kong when she and Klaus met.