Despite the cheaper rights, what seemed to be keeping karaoke small-time, Boyko and Taillefer discovered, is that no one had done enough legal legwork to obtain them: The karaoke discs used in bars often use tracks that are technically illegal. Other firms had tried to get into karaoke, including Electronic Arts with video games and Yahoo online, but had all gotten bogged down by the rights issue.
But in his research, Taillefer came across a little-known operation in North Carolina that was actually approaching critical mass. The Karaoke Channel owned the rights to more than 15,000 songs, and used a stable of studio musicians to record karaoke versions of them. The songs played on cable TV in the U.S., with subscribers paying a small monthly fee to have the channel on their service.
Although it emerged that it wasn't going to make it over the financial finish line on its own steam, the Karaoke Channel did show that karaoke is a natural fit for the unfolding interactive world of on-demand television made possible by digital cable and Internet-protocol services. Subscribers can pick whatever song they like, whenever they like.
The Karaoke Channel was in such distress that it had stopped paying licensing bills and was being bombarded with lawsuits that it couldn't afford to defend itself against. Boyko and Taillefer saw their opportunity: Acquiring the Karaoke Channel and its catalogue would unlock the puzzle. All they needed to do was convince their backers that karaoke, despite its tacky reputation, was the direction Stingray needed to go.
"I'm not a karaoke guy. I thought that was so cheesy," Sirois admits. "I said, 'Alex, find anything-but not karaoke.'" He was persuaded to join the two men on a trip to North Carolina to view the assets. He could see the catalogue of songs had value, but remained skeptical. Yet he got on board. "I thought it was a bad idea. Really I was backing Alexandre and Eric. Sometimes you just have to go with it."
Stingray bought the Karaoke Channel in the spring of 2007 and set about cleaning up the company's problems. It also started recording new tracks in North Carolina to expand the library. Then as now, completed songs are sent to Stingray's headquarters in Old Montreal, where in-house karaoke testers give them a tryout before they are offered on the Karaoke Channel, and via the company's online catalogue and iTunes.
While it was acquiring the Karaoke Channel, Stingray was also making itself into a more well-rounded digital music company, acquiring Galaxie - a series of music channels available on digital cable, which it bought from CBC - and Max Trax, a similar service that it purchased from Corus Entertainment Inc. for $16-million. Like specialty TV, it's a sweet business, with a steady stream of income: Cable companies pay Stingray to include the music stations among their offerings.
If he and Taillefer were going to make any real money from karaoke, Boyko knew Stingray had to start exporting the concept. An unsinkable salesman, he began meeting with cable operators all over the world. (He has become such a valued client of Air Canada that if he hasn't materialized for a flight, they call him.) By this summer, the Karaoke Channel was being seen in at least half a dozen countries, including Canada (through video-on-demand on cable), the United States and the United Kingdom. It boasts 35 million subscribers; by that measure, Stingray is Canada's leading broadcaster. Within a few years, Boyko expects the Karaoke Channel will be broadcasting in at least a dozen countries and approaching 100 million subscribers, including some in places as far-flung as Kenya, Croatia and Chile.
Stingray is also the biggest distributor of karaoke songs on iTunes, with a quarter of a million sales each month. Once the upfront costs of producing a song are paid - about $1,200 to $1,500 for rights agreements and musicians' time - the assets start paying back in spades. The business is now 80 per cent margin, Boyko says, and the catalogue is worth about $30-million. "At the end of the day, you're very profitable, but it's like owning a building," Boyko says. "You may bring in $2-million in rent, but the building costs you $20-million." The company, with a staff of 110, expects its revenue to climb to $35-million this year, from just $3-million two years ago.
In keeping with the venture's unconventional genesis, the deal that brought Stingray into the realm of tech giants happened by happenstance. Last year, Boyko's friend Belinda Stronach - the Magna executive and former MP - invited him and other executives from various companies on a heli-ski trip in the B.C. Rockies. As it happened, the party included several Google officials.