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How to keep record sales profitable despite the ease of file-swapping

By Greg Barns - posted Wednesday, 29 October 2003

As someone who reviews classical and jazz CDs for a daily newspaper, my sympathy should lie with the recording companies and not with the three students currently before the Local Court in Sydney for file swapping. I should be barracking madly from the sidelines for the Australian Recording Industry Association’s intervention in that case last week when it claimed that a number of recording companies had lost up to $60 million as a result of these students’ alleged activities. After all it’s the artists, so the recording companies tell us, who are the victims of file swapping.

But somehow I cannot help but see the three students as heroes. For what they are alleged to have done, albeit illegal, is draw attention to the fact that for years consumers in Australia, and globally for that matter, have been ripped off by recording companies.

That this is the case has, at least in the world of classical music and jazz, been confirmed by the fact that one label has been prepared to strike out and give the consumer a better deal while also looking after artists. That company, Naxos, is on a growth curve in this country and most other developed world nations, while most of its "name" rivals such as EMI and Warner, and even smaller labels such as Chandos, are desperately trying to survive.


When I wandered down to my very friendly and helpful supplier of CDs last Wednesday, he and I both shook our heads at the fact that the most recent recording by Warner of French composer Claude Debussy’s beautiful Etudes and Images played by pianist Pierre-Laurent Aimard is going to set a customer back $30 when, for $10, that same consumer can purchase the Naxos’ recording of the same music played by Aimard’s compatriot, François-Joël Thiollier. In fact, the consumer can purchase five CDs containing the complete piano music of Debussy from Naxos for only $50. No wonder that Naxos sells about 3 million CDs a year in Australia.

The founder and owner of Naxos, Klaus Heymann, who lives part of each year in New Zealand, has no fear of people downloading his music illegally and distributing it far and wide. Why would anyone take the risk when Naxos is always priced at $9.99? And that’s where Mr Heymann, who established Naxos less than 20 years ago, has beaten his older and more established rivals. While global companies like BMG, Sony, Warner and other labels sell CDs for double and triple what Mr Heymann charges his consumers the temptation to "beat the system" will remain.

Sony is seeking to get around the rise of downloading and file swapping by working with Telstra to create a legal downloading service. Other companies are pursuing similar strategies. What none – except Naxos – has addressed is the real reason that their product is so expensive.

Like tennis stars and rock musicians, classical and jazz musicians are demanding astronomical fees. That fact, coupled with the high cost of marketing and distribution networks throughout the world keeps the cost of CDs prohibitively high for many consumers and makes the Internet such a life-threatening experience for many labels.

But Heymann has always paid artists less. He has rightly figured that too many orchestras, groups and individuals in the music business are paid more than they are worth and the critics seem to agree with him. The prestigious UK magazine, The Gramophone has awarded Naxos’ recordings almost 40 major awards. Heymann has also kept his costs down by keeping his distribution networks to a minimum. He has now bought out his Australian distributor, for example. This means that Australian consumers will be able to directly access over 90 per cent of the entire Naxos classical, jazz and popular music and DVD catalogue at any time.

And the redoubtable Mr Heymann has anticipated the Internet’s potential to eat into his profit margins by looking at selling music directly to consumers over the Internet. This is likely to prove easy for Naxos because when an artist records for the label they also sell their rights in perpetuity across all media.


Instead of vigorously pursuing students who are running a micro-business in CD downloading and file swapping, perhaps ARIA and its members could take a leaf out of the Naxos book and change the way they do business. It would do wonders for their poor image among consumers.

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Greg Barns is National President of the Australian Lawyers Alliance.

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