ON THE wall of his office in Kowloon Bay, Klaus Heymann, the classical music budget king, has pinned an article from the German magazine Der Spiegel on the decline of classical music sales. It is a double-page spread, illustrated by four tiny shots of legends like violinist Sophie Mutter, cellist Rostropovitch, the Three Tenors, the conductor Herbert Karajan, and one huge half-page picture of Heymann and his wife, violinist Takako Nishizaki, in Hong Kong with the harbour glittering behind them. 'That showed them!' says Heymann. 'I got it framed! We were bigger than Karajan!' Showing them, the classical music business that is, means a lot to Heymann. He started Naxos, the discount classical music label in Hong Kong 10 years ago. Today, Naxos has an annual turnover of US$50 million (HK$365 million) worldwide, sales in Britain alone of 10 million, a 70 per cent market share in Scandinavia and a catalogue of 1,400 titles. It has been a triumphant personal success by any standard, but it took a long time for Naxos to be taken seriously by its rivals, and for Heymann, who is not a musician and cannot even read music, to get any kind of personal industry recognition. That moment came earlier this year when he won Label of the Year at the Cannes Classical Awards, organised by MIDEM. The chairman of the jury, David Hurwitz, who decided to give Naxos the award, put his finger on the way the very success of Naxos aroused such suspicion. 'The classical music world is full of snobs who believe that value is a function of exclusivity. Naxos has proven them wrong.' Heymann grins at the memory of receiving the award. 'Frankly it was a good feeling, especially at a time when the industry is in chaos.' He has the double satisfaction of knowing that not only is Naxos doing well, but that much of the rest of the classical music business is doing badly. JUST how a Hong Kong-based German came to give the recording industry giants of Deutsche Grammophon and EMI a run for their money, has been the subject of many questioning articles over the years. There is, on the face of it, nothing particularly complicated about Naxos' winning formula. Most of the recordings are made in Europe, and Heymann keeps overheads down by paying musicians a one-off flat fee instead of royalties, hiring recording technicians and support staff on a project basis and selling the resulting CDs at HK$40 each, about half the cost of his competitors who charge at least $98. He insists that his musicians stay in three-star hotels and travel economy ('Unless they are over 50') and never uses big-name orchestras or soloists, or records the same piece twice. The critical reception of Naxos recordings was mixed in the early days, but since then Naxos recordings have won industry awards. Heymann has always argued that celebrity names on a CD cover are no guarantee of star quality recordings, and as time has gone by, many critics and CD buyers have come to agree with him. As well as providing familiar pieces, he has expanded the repertoire to include many works never recorded before. Heymann cites Hong Kong itself as a key factor in his success. Although most of the recordings are done elsewhere, his headquarters and support staff of around 20 employees are located here. Not only did it mean his competitors were physically far away, it also gave him a can-do attitude to try to start something new. 'And then there was the favourable tax rate,' he adds. Like many Hong Kong success stories, his has been an unlikely trek to the top. He arrived here from Germany in 1967 to set up a local office for Overseas Weekly, a magazine aimed at GIs serving in the Vietnam War and nicknamed Oversexed Weekly for its pin-up content. Later he sold audio equipment and mail-order catalogues to the soldiers, then became the agent for audio equipment manufacturers Revox and Bose. From there it was a logical step to organising classical concerts as part of the promotion work. It was in this capacity that he became chairman of the fund-raising committee for the Hong Kong Philharmonic in 1974, shortly before it became a professional orchestra. Once that was achieved, Heymann was forced off the committee. He says this was because he did not want to work any longer for the orchestra unless he also had decision-making powers. It is an episode that still rankles with him more than 20 years later. 'Once they pushed me out of the Philharmonic I become the most violent critic of the whole thing,' he says. 'I went to the extreme of starting a magazine called the Hong Kong Hi-fi Music Review which was basically a vehicle to get at them.' This combined with several letters to the press complaining about backstage conditions and, famously, a petition to the Governor when the Urban Council reneged on dates he had booked for concerts in its venues, made him a thorn in the side of the Urban and Regional Councils for several years. These days, Heymann has put such squabbles behind him, in fact in 1990 he worked with the Urban Council to organise the (now annual) Midsummer Classics event, a week-long series of concerts aimed at attracting a young Chinese audience to the classical concert hall. Heymann regards the dark days of the mid '70s as a turning point. He met his violinist wife through the Philharmonic. According to Lucille and Glenn Vessa, who were witnesses at the wedding and have remained close friends, Nishizaki provided Heymann not just with personal happiness but a focus for his interest in classical music. 'They are one of those couples where there is a happy combination of business and romance,' Glenn says. 'They rub up against each other very well.' She also provided him with the means for his break into the recording business. In 1975, Nishizaki was busy with their son, Henryk, but anxious to work. Heymann's efforts to find her 'something to do' coincided with the chance to wreak a small revenge on the Philharmonic. 'In 1979, I heard they wanted to make a recording of The Butterfly Lovers,' he remembers. 'So I told my wife, 'We are going to show these people ... you learn that concerto.' And, of course, we had a huge hit with our recording and we killed theirs, absolutely. That was the beginning of the recording business. It was a sweet revenge.' The Butterfly Lovers went platinum in Asia, and Nishizaki has gone on to to record the piece another four times. Two years later, Heymann founded Marco Polo, a specialist classical label, and in 1987 he created a budget classical CD range, initially to satisfy Asian markets. By recording with little-known orchestras in Eastern Europe, Heymann was able to keep costs down and undercut the better-known labels by up to 50 per cent. Within two years he had expanded distribution outside Asia - 'The phone just started ringing,' says Heymann - and the Naxos success story had begun. In the beginning, Naxos, named after a Greek island and easy to pronounce in any language, received a lot of flak for cutting costs by hiring non-union Eastern European musicians. Even now, rival labels complain about his techniques. BMG UK's managing director Alison Wenham told The Independent newspaper last year, 'There is a moral issue here. Don't you think that if we could have put out that quantity of discs at ?4.99, we would have tried it? Klaus Heymann can because he exploits musicians. He records in Eastern European countries where you can buy musicians for 1/200th of what you pay [in Britain]. But if you value the cultural riches and diversity of the country you don't put out new recordings at ?4.99.' Musicians have also muttered about his cut-price philosophy. The numbers, they say do not add up. 'So who is not getting paid?' asked one disgruntled Hong Kong musician. In his defence, Heymann says: 'No one else would work with me back then. When they have nothing else to say, people always say Naxos was exploiting cheap Eastern European musicians.' And these days, with the economic changes in Eastern Europe, it is actually more expensive to record there, so now 75 per cent of Naxos recordings take place in Western Europe, mostly in Britain. These days he pays what he says musicians find 'reasonable, or they wouldn't work for it. Because they benefit from having their name on the records and this is the best distributed label, you can find our records all over the world.' The musicians who work for Naxos feel it is better to be recorded by Naxos than not be recorded at all, he says. In the current climate, not being recorded at all is a very real option. The old system, of fixed contracts with famous orchestras and conductors and highly paid soloists, is falling apart. The numbers no longer add up. Companies like Deutsche Grammophon are laying off staff, Phillips has dropped contracts with names like Riccardo Muti and Andre Previn. The old star system can no longer generate enough sales to justify itself and even famous orchestras, like the Philadelphia Orchestra, are finding themselves without recording contracts. Costs of recording with full-scale orchestras are so high that the major labels need to sell tens of thousands of copies before covering costs, and music lovers simply aren't buying. The cold wind of profitability has sent a chill throughout the whole industry. Heymann, originally out of necessity and now out of principle, has only ever recorded what he thinks will sell. As a businessman, he says, he 'never claimed to be a Samaritan'. He was never attempting to do anything other than make money. If the Heymann way of doing things has now become the only way the big labels can make money, he is gratified but not surprised. Anthony Camden, Dean of Music at the Academy For Performing Arts and an oboe soloist who has recorded six CDs for Naxos, is one artist who has profited on all fronts. His first recording, the Albinoni Oboe Concerti Volume 1, sold more than 100,000 copies and made both Naxos and Camden a lot of money. He is one of the few musicians - the only one, according to Heymann - to have bent the Naxos rule about paying musicians a one-off fee, managing to persuade Heymann to give him royalties as well as a fee. ('It was the worst deal I ever made in my life! We must have sold 100,000 copies,' says Heymann, half-joking. He and Camden are now personal friends.) For his part, Camden thinks Heymann's Thatcherite attitude to market realities has been good for the music business and Naxos need not pay as much as the other labels precisely because the CDs sell so well. 'All professional musicians want to make CDs because that is how you get a reputation and bookings. If you haven't made any CDs, then no one takes you seriously.' Naxos, he argues, is providing the artists with the best kind of publicity, they can't expect huge fees as well. The Heymann flat-fee philosophy has filtered through to some unexpected quarters, according to Camden. The Berlin Philharmonic, one of the world's greatest orchestras, has just hired legendary conductor Claudio Abbado on a greatly reduced fee, on the condition that they do not pay any other conductor for guest appearances any more than they pay him. Soloists will also be hired only on a fixed fee. Inevitably the kind of conditions Heymann imposes on musicians who want to record with Naxos have not won him many friends. And his marketing techniques, in at least one case, raised a lot of eyebrows. The Hong Kong Philharmonic recorded several pieces for Naxos, including some Richard Strauss and Glazunov. It also made the first complete recordings of Brahms' Hungarian Dances. In this last case, in 1988, the orchestra lost its chance to make its name internationally by having its name on a CD cover, since Naxos decided, with the consent of the conductor and the management of the orchestra, though not the individual musicians, to market the recordings under the more authentic sounding Sinfonia Hungarica. Although not unprecedented, passing off an orchestra under an assumed name is not common practice in classical music circles. When the musicians found out, there was uproar. Today, Heymann is still irritated by what he regards as foolish pride, a fuss about a perfectly legitimate marketing technique. He withdrew the disc and re-recorded the series with another group. The record-buying public, he says, is simply not ready for Asian orchestras playing Western classical music. 'Would you buy Schubert symphonies played by the Hong Kong Philharmonic?' he implores. 'Nobody would.' Such impatience with the niceties and such a firm focus on the commercial possibilities of classical music have not always made Heymann the most popular figure in the local music community. Even those who profess admiration for his achievements, like John Duffus, general manager of the Hong Kong Philharmonic from 1979 to 1986 and the man who restored amicable relations between Heymann and the orchestra in the early 1980s, admits the man can be formidable. 'It was no tea party negotiating with him,' Duffus says. 'We exchanged a few words. But there were no hard feelings.' His best friends, the Vessas, say his confidence is often mistaken for arrogance. 'He just sets very high standards for himself,' says Glenn Vessa. Everyone agrees he never throws money at a project simply for the sake of the music even though Naxos has been praised for its bold commitment to new recordings of lesser-known pieces. What seemed a risky strategy in the days when Decca, EMI and Sony were relying on rehashes of popular opera to bring in the bucks, worked out very well for Naxos. Its prices are so cheap, music lovers are happy to take a risk and buy something new. Heymann's recent move into punk rock, via his 20-year-old son Henryk's label OneFoot Records, could be seen as far-sighted, although at the moment, Heymann says, 'I just write the cheques.' If Heymann has a soft spot, it's for his family. He may be the scourge of the major labels, raising more than a few hackles in his dealings with local musicians, but at his homes in Hong Kong and New Zealand he and his wife call each other 'Mummy' and 'Daddy'. Although he says 'the Hong Kong bug' inspired him to start his own business, his idea of a good time is a night in with his wife and a glass of wine - scarcely the conspicuous consumption the territory's tycoons are famous for. With the Cannes award under his arm, Heymann has, in 10 short years, climbed to the top of an industry where almost everyone else is battling to stay in business at all. And he has managed it, he says, by sticking to the company's basic principles. It is no longer the only budget label in the market, in fact Heymann has launched his own super-budget label, Lydian-Donau, based on the Naxos back catalogue, to compete with the cheap labels now on sale. Now Heymann, the alleged 'exploiter' of musicians, is coming to the defence of artists who, he says, are being ripped off by his competition. Other cheap labels cut costs by selling old analogue recordings as digital and even use the names of Naxos musicians, he claims. 'We have won quite a lot of court cases for our artists on the back of that. The only way they can undercut me is by doing things that are not legitimate, and I have been pursuing them very actively in the courts.'