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An employee walks past the Muzak logo near the entrance the company's headquarters in Fort Mill, S.C.The Associated Press

When Lorne Abony cut a $305-million cheque last year to buy one of the most mocked brands in corporate history, he defended Muzak as a service whose best times were still ahead.

Muzak Holdings Inc. had just exited Chapter 11 bankruptcy when Mr. Abony's Toronto-based company, Mood Media Corp. , stepped in with a takeover bid. Now, after bearing six months of elevator music jokes, it may finally be his turn to laugh.

The company is telling analysts to expect the current quarter's earnings to be 10 per cent better than they expected. The reason: Mood is having some success convincing Muzak's customers to purchase its other "in-store experience" products – items such as the digital advertising screens found in many retail stores.

In January, Mood Media doubled the number of customers for so-called visual services over the number it signed up in all of 2011. The sudden growth spurt is completely attributable to the Muzak acquisition, Mr. Abony said, because retailers have shown a preference to do all of their in-store visual and audio marketing through one supplier.

"Six months ago when we made the purchase our general view was that it would take 12 to 18 months to explain the opportunities we could offer those retailers," Mr. Abony said Friday. "We've collapsed that timeline. The take-up has been extremely quick."

Mr. Abony likes to use the example of Canadian example of Loblaws to explain how the company can offer more than music. In some stores, Mood Music has set up digital advertisements that are in sync with the in-store announcements. If tomatoes are at risk of spoiling in aisle three, the digital signs can advertise a sale, just as a voice alerts shoppers to the new deal.

The company also charges retailers to change the way their stores smell.

"When you walk into Abercrombie [&]Fitch, there is a certain smell in the store," Mr. Abony said. "In some cases it's to create an experience, in other situations it's to mask the smell of other bad things like people taking off their shoes."

Suddenly, a small Canadian company that few people have ever heard of is one of the largest players in its industry, with a market capitalization of about $370-million.

While the company's quarterly earnings show a net loss of $13-million in the last quarter, the company prefers to cite its EBITDA (earnings before interest, taxes, depreciation, and amortization), because the losses stem largely from non-cash charges.

For the current quarter, it expects to report about $34-million EBITDA. According to Standard & Poor's Capital IQ, in the past year the company generated $9.6-million in free cash flow after the company's interest payments and capital expenditures were considered.

The average Muzak customer has used the service for 17 years, in an industry where the average is six. And Mood Music's existing retail customers have more than 100,000 stores in China, a market the company hasn't even looked toward yet.

Mood Music also carries about $400-million in debt thanks to the Muzak purchase, approximately the same amount that caused Muzak Holdings to collapse. But with a broader opportunity to generate revenue through alternative services, it's difficult to make comparisons between the two, analyst Rob Goff said.

Other analysts agree – eight follow the company, and six of them have "buy" ratings.

"A key investor concern has been the company's leverage following the Muzak acquisition," said Mr. Goff, an analyst at NCP Northland who expects Mood Music's share price to double within a year. "We suggest that these concerns are overblown."



Acquired Muzak after it emerged from bankruptcy protection and now streams music to 470,000 locations


After acquiring Muzak last year, the company now provides music to 470,000 commercial locations in 40 countries. The company, which Mood Media bought after it emerged from bankruptcy protection, is 75 years old. Its customers are loyal, with an average partnership lasting 17 years. It doesn't just do music – it can pipe in sounds to set a mood, such as underwater noises in a pet shop.


Mood Media specializes in "visual content," which means it provides digital advertisements that can be played in-store. That can include digital price tags that chains can be updated from one central location, or a video screen set up in the stores.


The company also provides custom scents to retailers. That could mean piping in some pine fragrance for an retailer selling outdoor gear, or generating a fresh scent for a shoe store to mask the smell of socked feet. Its research suggests pleasant smells can increase sales by 25 per cent.

Steve Ladurantaye