Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Mood Media video screens can be seen behind the cash registers at the Super Dry clothing store on Seventh Avenue in New York City. (Neville Elder for The Globe and Mail)
Mood Media video screens can be seen behind the cash registers at the Super Dry clothing store on Seventh Avenue in New York City. (Neville Elder for The Globe and Mail)

TURNING POINT

Background-music provider rattles the Muzak scene Add to ...

One of Canada’s fastest-growing companies is based in Austin, Tex.

Well, almost. The in-store media company Mood Media Corp. is in the process of moving there. But not from Canada – no, from the Charlotte, N.C., area, the former home of its biggest acquisition to date: Muzak Holdings Inc.

Mood Media’s Canadian chief executive, meanwhile, has been living in Florida, where he hoped (but failed) to retire, since 2006, after the sale of his previous business.

More Related to this Story

These are the growing pains of a company that, through a handful of acquisitions, now offers music, digital signage and even scent branding to 570,000 stores worldwide. With each acquisition – there have been nine – Mood Media expands its market penetration by bundling complementary services for newly acquired clients. It’s a strategy that has helped it grow more than 60 per cent in the past fiscal year alone, and more than 40,000 per cent since 2007.

Mood Media succeeded where its competitors failed. Muzak, the company best-known (and most admonished for) elevator music, and DMX Holdings, which Mood also bought, were burdened by expensive royalties, the cost of acquiring franchisees and, in a final blow, the great recession.

Mood Media’s music database contains 6 million songs uploaded by musicians who have voluntarily reduced their royalty rates in exchange for the company distributing the tunes. The database became the tool Mood Media would use to disrupt and then conquer the international background music market: Not only did it make Mood less vulnerable to its competitors’ problems, it put them in a position to buy the weakened rivals.

“We have millions of tracks, and you only need a small number to scale a business,” says Lorne Abony, chief executive officer. “There’s no redundancy if you’re playing a spa track in Arkansas or playing a spa track in Brooklyn.”

Back in 2004, entrepreneur Justin Beckett, a colleague from a former venture, approached Mr. Abony about how to best monetize the growing reduced-royalty song inventory of his new company, Fluid Media Networks Inc. The company had “a great asset to disrupt an industry, but he didn’t know what to do with it,” Mr. Abony says. “So we reverse-engineered a business model.”

They sought an industry where they could benefit from low-cost, high-quality music content, and decided on background music.

The company made an initial public offering in 2008, having already begun scooping up competitors, including Mood Media Group, whose name the company adopted.

Shortly thereafter, at a board meeting in 2010, executives realized they could offer more than just music. Some of the companies they bought had other media offerings, and the directors realized they could bundle these services, much like cable companies began to bundle cable, telephone and Internet in the 1990s.

“We had this amazing retail footprint,” Mr. Abony says. “When you think about it, you realize ... you can layer on top of it.”

Today Mood Media has 2,000 employees and offers digital signage, in-store scent branding and even targeted mobile ads. Its video and other services make up 25 per cent of its business, a segment the company would like to grow.

The company’s quick rise, however, hasn’t exactly appealed to public shareholders. After a 2008 initial public offering of $2 a share, the price rose to more than $4 by last year, but has since collapsed to around a dollar.

Among the company’s struggles is the weight it carries following the Muzak acquisition, which was financed with $480-million (U.S.) in debt, including the refinancing of Mood’s previous debt. But other acquisitions, such as DMX, were financed with equity, and Mr. Abony says there are measures in place including a strong cash pile and well-diversified customer base to avoid emergencies. When it comes to Mood’s finances, Mr. Abony says, “I sleep well at night.”

The company also announced last month that it was exploring “strategic alternatives to enhance shareholder value,” not ruling out a possible sale of the company.

Of the eight analysts who cover Mood Media’s stock, half give it a “buy” rating, with two rating it “market perform,” according to Bloomberg.

Still, they say there is much room to improve. Analyst Robert Gibson of Octagon Capital Corp., who has a “buy” recommendation, said in a research note that while Mood Media is trying to consolidate operations to lower costs, they’re taking a “conservative approach” to it, to the detriment of recent results and analyst estimates.

Similarly, Byron Capital Markets analyst Rob Goff says that while the company’s “legacy audio business is solid,” Mood Media has barriers to overcome in its in-store signage department, including content outlay costs and North American expansion. If 5 per cent of the company’s existing clients on the continent adopt its visual products, Mr. Goff says, it could add as much as 70 cents to the share value.

In other words, Mood Media needs to focus on its bundling strategy. Which, Mr. Abony says, the company plans to do.

Now that Mood Media is finished with its wild, youthful days of playing the field, it is settling down – in Austin. A global music hub, the city makes sense as the company home; it also happens to house the headquarters of the freshly acquired DMX.

After “commuting to work for the last four years,” Mr. Abony will be joining the company at its new Austin headquarters in July to focus on Mood’s future: “Now that we’re done making acquisitions, at least in the near term, the focus is on consolidating the business to make one huge, strong company.”

The company made strides in honing its focus just this week, announcing the sale of its specialty music and DVD production and distribution subsidiaries.

Mood Media also announced its first-quarter earnings on Thursday, seeing $129-million in revenue growth - a 54 per cent rise over the same quarter last year. The company posted a loss for the quarter of close to $5-million after tax. Shares rose about 3 per cent to $1.00 in mid-day trading.

Follow us on Twitter: @GlobeSmallBiz

In the know

Most popular video »

Highlights

More from The Globe and Mail

Most Popular Stories