If you’ve never heard of X5, we can’t blame you. The company, started in 2005, has been quietly making a huge splash on the classical music scene by releasing massive compilation albums. The music group doesn’t have any permanent in-house musicians and seeks to sign licenses rather than artists.
X5 focuses on back catalogs of classical music and creating custom compilations with titles like “The 99 Darkest Pieces of Classical Music” or “The 50 Most Essential Pieces of Classical Music” which, since being released in 2008, has made more than $2 million worldwide. Essentially, they buy up a truckload of song licenses at low-rates, package them into winning compilations and resell at a moderate markup. X5 has released more than 8,000 of these thematic albums — some by composer, mood, holiday, etc. — with most falling under the “classical” genre.
In 2010, X5 was the number two classical label in the U.S. with a 20% market share, and had 13 #1 Billboard Classical albums — more than any other label, save for Universal Music Group (with whom X5 is currently in talks).
The company has been able to make all that money through some simple tricks: The albums are inexpensive, the artwork is simple but striking, X5 distributes through all major music sites — iTunes, Amazon, Spotify, Rhapsody, etc. — and designs albums with a kind of “music SEO” in mind. “Think of the person that types ‘classical’ into the iTunes search box,” says Scott Ambrose Reilly, X5′s new U.S.-based CEO. “That’s the kind of person we’re trying to sell to.”
The idea is for an X5 album to show up at the top of every list when a user searches for “classical” or “classical music” in whatever service they’re using. Classical is a notoriously difficult genre for new listeners to broach. There is so much content, it’s hard to know where to start. X5′s success is as a kind of musical sherpa, ushering casual fans into the essentials and then selling them thematic compilations as their tastes evolve. It’s a pattern that is replicable across genres, says Reilly.
X5 has just branched into the States and is hoping Reilly, who formerly helped Amazon run its music distribution platform, can help the company grow into new markets like rock, hip hop, country and beyond.
X5 is not reinventing the wheel. Compilation records have existed for a long, time but few have realized the importance of optimizing those compilations for social search. Social search, the act of finding music and albums via social networks or app search bars, has become the main way that a lot of people get their tunes. Tapping into these methods is X5′s secret sauce: the ability to optimize for the modern music consumer.
Free music streaming services like Spotify seem like a natural obstacle to X5′s model, but even these services rely heavily on curated playlists and search for music discovery. It doesn’t hurt that Northzone Ventures, one of Spotify’s major funders, recently invested approximately $9.2 million in X5.
The model isn’t perfect, though. X5 constantly optimizes its albums to sell well even as they’re being made. “When the producers are creating albums, we’re constantly calculating the break-even point based on the time that went into it, the amount of tracks, the artwork, the publishing … ” Reilly says.
The danger is that these optimized albums will focus on sure-fire hits and ignore lesser known songs and artists in order to reach a certain sell point. Reilly insists, however, that the goal is always to use as much of their purchased catalogs as possible. Beethoven and Chopin may show up more than once across X5′s albums but users will also get songs from lesser-known composers and artists.
X5 is set to expand quickly with a model tailored to how people actually get their music. The emphasis on curation over signing artists gives the music group far more flexibility than traditional record labels while also allowing X5 to adapt to new platforms and radical shifts in the music industry. As long as X5 can sign a license, they can turn a profit.
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