It was on New Year's Eve that the idea struck Alexandre Taillefer. The Montreal tech executive was hosting a party at his home to usher in 2006, and he wanted to add karaoke to the mix. But when Taillefer went to rent the equipment, he was taken aback by the cost and hassle of even a bare-minimum setup. He ended up spending $1,500 and devoting hours to arranging DVDs and typing up song lists so guests would know where to find Sweet Caroline and Islands in the Stream .
Taillefer couldn't fathom why, at a time when the Internet streams content to people's homes at low cost, karaoke tracks weren't just as easily available as a YouTube video. Sure, there were various cheap rip-offs available online, but nothing that resembled the boisterous experience of packing a bar with a bunch of friends to belt out some favourite tunes.
Most people would have shaken their heads and left it at that. But not a serial entrepreneur like Taillefer. In the mere 3-1/2 years since that New Year's epiphany, Taillefer and business partner Eric Boyko have built a company, Stingray Digital, that is poised to become the top global player in a digital golden era for the hokey pastime from Japan.
Thanks to its core asset - the Karaoke Channel - Stingray already has the distinction of enjoying the largest global audience of any Canadian broadcaster. But it's just getting started: The company's new partner is none other than the monster from Mountain View.
Google Karaoke, anyone?
If turning karaoke into big business sounds offbeat, Stingray's entire history has been just as unorthodox. When Taillefer (who is CEO) and Boyko (president) started the firm, they didn't know what it would sell - they simply knew they should be in business together.
It was 2005; both men were successful tech entrepreneurs who had built companies and sold them off, pocketing handsome returns in the process.
Boyko, now 39, founded eFundraising.com in the early '90s while still attending McGill University. The company helped schools and other organizations operate fundraising drives. At the height of the tech boom, Boyko sold the business for $30-million to Zapne Corp. He later bought it back for 10 cents on the dollar after the tech crash, rebuilt it and sold it again at a profit to Reader's Digest for $3.5-million.
"That's when you know you are a good entrepreneur - when you can sell it, buy it back, and sell it again," says François-Charles Sirois, vice-president of corporate development at Quebec private equity firm Telesystem Ltd., which was one of Stingray's earliest backers.
During the same period, Taillefer, now 37, founded Nurun, an Internet design and software company that he sold to Quebecor Inc. He then created Hexacto, which made games for cellphones. It was snapped up by Jamdat, which in turn was consumed by Electronic Arts.
Flush with cash and enjoying a reputation for turning seed money into profits, in 2005 the two men began casting about for a new venture. But what? They had no idea. They had only a name - Stingray Digital - and their talents: Taillefer, the analytical and detail-oriented mind; and Boyko, the numbers guy who can also nail a sales pitch.
"There are instances where you wouldn't want to have two, let's say, 'alpha men' in the same shop because they would be banging heads all the time," says Pascal Tremblay, general partner at Novacap, another private equity firm. "But these guys are so different and complementary that they make a very good team in the end. It's a powerful mix."
Novacap stepped up to invest in whatever Boyko and Taillefer wanted to pursue (the firm now owns 21 per cent of privately held Stingray), as did Telesystem, which now holds 36 per cent. (The board consists of Boyko, Taillefer, Tremblay and Sirois.) For Sirois, the son of CIBC chairman Charles Sirois - a onetime tech wunderkind himself - backing a company without a product was an attempt to correct a past mistake. In 1998, Boyko approached Telesystem for capital to expand eFundraising.com. "I thought it was the worst idea in the world," Sirois recalls. "I told Eric that I would not put any money in that kind of project. And six months later, he sold the company for $30-million."
With funding for Stingray in hand, Boyko and Taillefer spent nearly a year weighing ideas. They ranged from the unlikely (online bird watching) to more conventional content plays like trivia.
When the partners considered karaoke, the nut issue became apparent almost immediately: rights.
Music rights vary by application. It is one thing to broadcast a song, another to license it for an ad, and another again for an artist to record a song. And it's yet another to record a karaoke version - to replicate the backing tracks with hired musicians, with the lyrics embedded for simultaneous playback. Karaoke rights are cheaper than recording rights, because there's not as much intellectual property at stake (and, at least until now, not much audience at stake either).Report Typo/Error
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