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TheStreet Open House

#DigitalSkeptic: Human DJs Find Their Place Deep in Age of iTunes

NEW YORK (TheStreet) -- Johan Lagerlof is making real money with a way-untrendy digital music business idea: What humans want is not tunes coldly conscripted into musical service by robots, but songs lovingly curated by other living, breathing humans.

"We have the tech tools for distribution and management and the boring stuff. But we have humans do all the fun stuff," said Lagerlof, the engaging and surprisingly blunt CEO of X5 Music Group, a Sweden-based digital music distribution and marketing company, over the phone from Stockholm.

And at least so far, the musical bots at Pandora's Music Genome Project and whatever intelligent preference engines that drive Spotify, Facebook and Google appear to have something to worry about. Not only have investors begun to debate the true power of machines automating the musical experience; the 30-employee X5 saw $12 million in revenue last year. Sales are growing by 30 percent year over year, mostly through the sweat and blood of roughly 40 paid independent music curators who hand-pick X5's tracks and mixes.

"We work with music nerds from around the world that create playlists, select anthologies and craft music collections," Lagerlof said. "And then we distribute them on various digital platforms."

Like many musical entrepreneurs, Lagerlof started off as a songwriter and producer. But the downturn in music revenues caught up with him, and his business collapsed in the early millennium.

"It was fun sitting in the studio," he said. "But it was sad because your costs were not covered."

He left producing, first to sell ringtone versions of popular music to European cellphone companies. Around 2004, he was wowed by iTunes opening up shop in Germany. Immediately, to Lagerlof's credit, he realized that digital music worked backward from traditional retailing. Successful tracks on iTunes did not rise quickly during the first few weeks of release as they did in traditional discs or vinyl; in the digital world it took time for users to rate a song, link to it and allow search technologies to pull it out of the heap.

The turtle-beats-the-hare digital music market, therefore, was ideally suited for the repertory with the longest shelf life -- that is, classical music. Lagerlof curated and secured rights to a full library of music collections from the likes of Brahms, Mozart and Beethoven. "What we saw was, you were not limited to CDs in terms of length or rights," he said. "So we tried 10 songs in one iTunes package for $10 and then 30, and then finally 50 for $10."

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