Edition: U.S. / Global

L.I. @ WORK; In CD Sales, Contrarian Runs Away From Pack

Published: July 21, 2002

NO ONE who knows Michael Koch would be surprised that in the middle of a recording industry slump that shows no signs of easing, he has picked this moment to expand.

Sales of CD's are down 14 percent this year over last, itself a dreary period, and the future is clouded by disputes over which recording formats. But Mr. Koch, an Austrian-born music entrepreneur, says his company expects to outpace its 2001 sales of $117 million by as much as 20 percent.

Mr. Koch is merely doing what he always does: forging ahead in precisely the opposite direction as the rest of the pack.

He has built his 15-year-old company, Koch Entertainment in Port Washington, into the country's largest independent distributor of recorded music largely by rereleasing performances of classical, jazz and ethnic music that slipped out of the catalogs years ago. He remains an industry contrarian who does not flout the rules so much as ignore them.

''I think one reason we have succeeded is because we didn't realize how much we didn't know,'' he said. ''We learned by doing. We made mistakes, and we learned important lessons.''

Mr. Koch started out as the American sales representative for his father's CD-pressing company in Innsbruck. It took some effort, but record executives gave him a chance, and he made the most of his opportunities. ''I polished lots of doorknobs, and learned I might hear 'yes' if I heard 'no' 15 times and didn't give up,'' he said.

In 1999, he founded his own record label, also called Koch Entertainment, based in Manhattan, and started signing up artists like Carole King and Charlie Daniels whose glory days might be behind them but whose fans still buy their recordings, albeit in numbers too small to interest larger labels.

''The major labels get rid of artists who don't go gold or platinum,'' Mr. Koch said. ''We can make money with an artist who sells 100,000 recordings, or even 50,000.''

Koch Entertainment also produces its own jazz, classical and country recordings. ''We're still a small label, but I think we're getting known pretty fast, in part because we have the distribution already in place,'' said Bob Frank, the label's president. ''The label already produces maybe 40 percent of the company's revenues.''

Last month, Mr. Koch celebrated his company's 15th anniversary by making a few characteristically contrarian deals. The largest was the acquisition of a neighboring building in Harbor Industrial Park in Port Washington, which will provide 30 percent more warehouse space for his distribution subsidiary.

''Whatever is going to be the future of the CD as a music recording medium, we know it's going to be around for another five to 10 years at least,'' Mr. Koch said.

Those who know Mr. Koch often say his work ethic is his defining characteristic. In recent weeks, as many of his larger-living competitors slipped away on vacation, the soft-spoken but highly focused Mr. Koch stayed on the job and reached a series of distribution agreements to give his label more muscle in the urban music category. Johnny Wright, the manager of artists like Britney Spears and Sean Combs, will bring Triple Image, a pop trio aimed at young audiences, to Koch. Koch will distribute FUBU Records, the label formed last year by the urban-wear fashion entrepreneurs, and will reissue the Suave House Records catalog.

Somewhat improbably, the rappers, hip-hoppers and rhythm-and-blues performers will be joining a distributor teeming with reissues of classical, jazz, ethnic, folk and spoken-word albums, many of them connoisseurs' choices pressed decades ago that met with critical acclaim but tepid sales. Through Koch, these performances have found a new generation of enthusiasts.

The reissued recordings represent 70 independent labels, including prestigious and decidedly noncommercial American labels like Smithsonian and Arhoolie and imports like Kyrichord Discs, Chandos and Melodiya. The operation has made the Port Washington warehouse a repository for performers as varied as Cajun accordionists, Celtic fiddlers and Peruvian pipers, music prized by collectors but unlikely to wrest shelf space from pop albums.

By massing the catalogs of dozens of small labels, Koch has achieved an economy of scale previously limited to the largest pop labels, making hundreds of obscure recordings profitable their second time around.

In buying up rights, Mr. Koch specifies that his company be the sole distributor, in contrast to traditional arrangements. ''If there was one thing we did that made us successful, it was probably insisting on exclusivity,'' he said.

Michael Rosenberg, the president of the distribution subsidiary, predicted that record sales to adults would rebound, possibly soon. ''People over 35 don't go into CD stores and browse very often,'' he said. ''Older consumers will learn about a recording if it's mentioned in the news or if it's a soundtrack to a film they see. Otherwise, they feel they already own enough CD's. The key is to get them interested in a new recording and then reach them with other recordings that are similar in some ways but different in others.''

Along with the old recordings, Koch also distributes hundreds of albums by contemporary performers, including those on a Buffalo label called Righteous Babes Records, founded by the singer and songwriter Ani DiFranco, called ''the poster child for grass-roots indie success'' by Billboard magazine.

Scot Fisher, Ms. DiFranco's manager, credited Koch with helping her recordings reach a wider audience. ''It's important for Ani to have complete artistic control over her recordings, and we found out that isn't possible when you get distributed by the companies controlled by the major labels,'' he said. ''You want a big distributor to go and kick the door in at Tower Records and get you in the bins, based on the muscle they have from their big-selling artists. But they want things their way in terms of the recordings.''

''With Koch,'' he added, ''Ani was able to keep artistic control over her CD's and at the same time get into the listening posts that Koch has set up at Tower Records. That was so important. Whatever Koch may lack in size, we saw them make up for it in hard work for their labels.''

Koch has just 220 employees, and its current market share, just above 2 percent, is puny by the standards of the major record companies, but impressive for a business built on Elgar and Rossini, mariachi bands and readings by Gregory Corso, the Beat poet.

Holly Rosum, the director of membership services at the National Association of Recording Merchandisers in Marlton, N.J., said she found that Koch employees brought a combination of enthusiasm and expertise to their work that helped them compete against deep-pocketed competitors.

''They're passionate about their recordings and at the same time extremely knowledgeable,'' she said. ''The people they deal with on all levels start feeling that way, too, about their products.''

''These are thousands of marvelous recordings getting a second chance to be heard because of Koch,'' she added. ''Without them, they'd be getting moldy in boxes in people's attics.''

Photo: Michael Koch, left, the founder of Koch Entertainment, and Michael Rosenberg, the president of the company's distribution subsidiary, at its CD warehouse. (Phil Marino for The New York Times)