Lorne Abony’s life could make a good reality TV show. For starters, the man unabashedly delights in the spoils of success: a mansion shielded by sculpted hedges in ultra-posh Palm Beach, Fla.; a white Porsche 911 Turbo and a Ferrari California (“But I’m not a car guy,” he says); membership in Mar-a-Lago, the high-glitz private club owned by Donald Trump (a close enough acquaintance to have penned a reference letter for Abony’s green-card application). The 41-year-old serial entrepreneur also has the requisite rags chapter in his tale of ascendancy to riches: born in Toronto to immigrant parents, he was raised by a single mom in subsidized housing. And he has the high-octane ethos of a Type A achiever, complete with 90-hour workweeks, a million flight miles logged, and disdain for vacations and the very notion of work/life balance. For relaxation, he plays competitive tennis.
Over the course of half a dozen ventures, ranging from online pet supplies to encryption software, Abony also has acquired some notable claims to fame, including being the youngest CEO of a TSX-listed company and raising more than $1 billion in capital over 10 years—a figure he reckons no Canadian can beat. Now, he’s CEO of Toronto-based Mood Media Corp., a young giant in the rapidly expanding business of in-store media—and Canada’s Fastest-Growing Company. In 2010, Mood’s sales hit almost US$145 million—up by 72,384% since 2005—earning the firm top spot on this year’s PROFIT 200.
What, you may ask, is in-store media? It’s the background music, video, signage and even customized scents intended to make customers stay longer and open their wallets wider. “When you walk into a store, the music you’re listening to is likely from us,” says Abony as he perches on a gold lamé couch in an ornate Mar-a-Lago salon. The same may be true for the promos and music you hear while on hold with your bank, or the advertising displays at a Burger King. “We help our customers sell more,” says Abony. “By making the store sound good, look good and in some cases smell good, consumers feel better and stick around.”
“Sensory branding services” is the lingo in the trade, and within a few years, Mood Media has become the global leader, with 1,750 employees in 39 countries and 470,000 client locations as of May 2011. When Abony entered the sector, it was a sleepy industry “fraught with an antiquated business model and heavy capital expenses,” he says. In short order, Mood introduced a new approach and technology, undercut its competitors’ prices and consolidated the industry.
“In one year, they acquired the No. 1 and No. 2 players in the space worldwide,” says Hugo Lavallee, manager of a Fidelity Canada mid-cap fund that holds Mood stock and who has known Abony since 2003. “These guys are always going 100 miles per hour, pedal to the metal. It’s a function of their personalities.”
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In May, Mood completed its biggest deal to date, buying Muzak Holdings, the South Carolina company that is to piped-in music what Kleenex is to facial tissue. Muzak was Mood’s main rival in North America; combined, the two firms did US$400 million in sales in the previous 12 months—five times their closest rival. Now, Abony’s team of young, tech-forward crackerjacks must subsume and digest a much older and larger entity that’s done things its way for a long time—a task that can trip up the most successful of management teams. The challenge doesn’t faze Abony, who boldly intends to do with Muzak what Mood did with its three previous acquisitions: “We’re gonna grow the living daylights out of it.”
Abony, a fit guy with the brash affability and platinum tongue of a born salesman, may be a charismatic vision spinner, but Mood is the product of a tightly knit team. Several of its top people built earlier businesses with Abony—most notably, Andrew Rivkin. Friends since high school, the two have worked together since the mid-’90s, when Abony co-founded online pet supplies retailer Petopia and Rivkin launched CryptoLogic, a developer of online gaming software that topped the PROFIT 200 in 2002. They helped each other with those ventures, and when Abony sold Petopia to Petco, he joined Rivkin at CryptoLogic. “Whatever our titles, we’re partners,” says Rivkin, who’s officially a consultant to Mood but is intimately involved in the business. “Lorne does a better job at the external-facing functions. The numbers-related stuff, I do better.”
A third team member is James Lanthier, Mood’s COO and a top Abony lieutenant since Petopia. Along with a few others, the trio has worked together so long they collaborate almost instinctively. During the complex Muzak deal, says Lanthier, “I don’t think we had one organizational meeting to decide what different people would have to do. We all just knew.”
Their involvement in what is today called Mood Media started when they were still hip-deep in their previous business. Back in 2002, after stepping away from CryptoLogic’s management, Abony and Rivkin started a new company developing online card, arcade and other casual games. Five years, five rounds of equity financing and seven acquisitions later, Fun Technologies was the dominant player in the niche, worth almost $500 million when U.S. giant Liberty Media acquired it in 2007.
By that point, Abony’s interest had started to shift to an idea floated by a U.S. entrepreneur named Justin Beckett several years earlier. Beckett had told Abony that consumers would reject digital rights management of music, that user-generated content was the future and that artists would turn to the web to get their music out. Abony was intrigued enough to bet $300,000 on Beckett’s view of the future. “And he was right about all of it,” says Abony.
Except the business model. The company, then called Fluid Music, wanted to offer unsigned artists a way to find an audience. It bought the rights to be American Idol’s online arm for $12 million—a hefty sum for a startup to recoup. Beckett was charging artists $50 to post a song, but starving artists don’t have $50 to spare. Then he tried advertising, which also didn’t work. “It was the standard Internet nonsense,” recalls Abony. “Three trillion visitors, eight gazillion clicks, but revenue was lower than a hotdog stand’s.”
Beckett, on the verge of going broke, came to Abony and Rivkin for help, and they quickly realized he was sitting on an incredible asset: 1.7 million royalty-free songs. Eager just to be played, artists gladly signed over worldwide distribution rights. “There are 11 million emerging artists in North America and they all believe they’re one listen away from stardom,” says Abony. “Our distribution network is larger than Clear Channel’s. What we’re giving artists is the chance to be heard.”
In late 2007, Abony invested $10 million of his own money and a new team started reverse-engineering the business. (Beckett remains a board member.) In trying to figure out how to make money off all that music, they realized that royalty-free songs could be a gold mine if they were packaged into channels—pop, salsa, new age—and sold by subscription for instore play. Companies like Muzak, DMX and PlayNetwork were already providing such services, but they spent two-thirds of their gross revenue on royalties. Mood, which divides just $60,000 a year between its 40,000 artists, had essentially free content. That meant, says Abony, that Mood could charge a third of its competitors’ prices and still have double the margin. (Fees range widely due to numerous factors, but Abony estimates a very rough average of $50 a month per location.)
Mood’s second key innovation was to deliver that music via the Internet rather than satellite. Broadband is more efficient and makes content easily customizable to clients’ needs, hour to hour and store to store. A supermarket chain can inject promotional messages about a yogurt sale into some stores’ background music while other outlets plug gardening supplies. Combining digital audio with video and signage can pack a powerful promotional punch. Mood’s internal and commissioned research has found that having the right background sound can increase a store’s sales by 18%; add video or signage to the mix, and the number can jump to 30%. In 2009, for example, Dutch bank ING, already a Mood client for music, asked Mood to produce video that would run on TVs in its branches. A 15-week test promoting auto insurance boosted results by 58%.
In-store digital signage, which enables retailers to change prices instantly or update promotions throughout their networks or at individual stores, is a major opportunity, says Abony. Today, video and signage comprise 20% of Mood’s revenue, but Abony predicts they’ll feed much of the future growth because the penetration of in-store marketing and branding services is currently low. According to third-party estimates and Mood’s own assessments, only 25% of North America’s market and 13% of Europe’s has been tapped.
But finding this promising niche for Mood’s music storehouse was preceded by several stumbles. At one point, Mood tried to serve as the record label for its artists. “That was ridiculous,” Abony admits. Puretracks.com, a once-promising Canadian rival to iTunes that Mood got as part of a larger acquisition, has proven to be another disappointment. Abony wanted to turn Puretracks into a white-label service, telling retailers that selling iTunes cards was driving music buyers away from their stores. But Mood discovered that no chain wanted to get on the wrong side of iTunes. “It’s more powerful than Wal-Mart in the music business,” says Abony.
One thing Abony tells entrepreneurs seeking advice is that to create a thriving business, you can’t stick to your business plan for long; you need to adapt to changing circumstances and opportunities. “The key to running an early-stage business is being fluid and flexible. You gotta keep moving your business model around,” he says. “If you can’t get out of a ditch by going forward, then go a bit to the right, or go backwards, or take out the right seat. There’s always a way. If we’d stayed in music aggregation, we’d be bankrupt—100%.”
That agility includes being open to new directions. In early 2010, for example, a shoe retailer asked Mood for help in masking the foot odour permeating its outlets. Abony considered declining, but found it was easy to create a custom scent service in-house. Since then, other clients, including Gucci, have signed up.
Lavallee believes this adaptability is perhaps the Mood team’s greatest strength. “These guys don’t get stuck in an idea,” he says. “They’ve changed the business on a dime within months.”
The company’s biggest move prior to Muzak was another such nimble leap at an opportunity, by which the firm acquired both Europe’s in-store media leader and the Mood moniker. Abony had learned through a contact that Luxembourg-based Mood Media Group SA was about to be acquired by a French company. The deal was practically done. Nevertheless, Abony jumped in, came up with the financing and persuaded the acquisition target’s management and a few important shareholders that his fi rm would be a strategically better owner. “Most people would have walked away,” says David Wismer, who heads technology investment at BMO Capital Markets and worked on that acquisition’s financing. “But [Lorne’s] a great transaction guy, recognizing deals that will help further the business and getting them to happen.”
That deal, completed last June, was key to solidifying the current direction by giving a large overseas presence to Fluid, which adopted the Mood Media name in the process. The post-merger Mood now controls 35% of the European market for in-store services (its largest competitor has a 5% share), has a signifi cant footprint in Asia and Australia, and, with the Muzak deal, owns almost half the North American market share. While much of this reach was accomplished through acquisitions, Abony insists that a signifi cant portion of Mood’s growth has been organic, using acquired companies as platforms for boosting revenue by cross-selling services to larger client bases.
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“Scale matters in this business,” says Abony. The bigger your store network, the more negotiating power you have with suppliers, and your content costs per store drop. But the primary reason is that the industry is at an inflection point, where revenue per customer is about to skyrocket. Abony compares this with what happened to cable providers when they added Internet and phone services to their product mix. Bundling is even more important in in-store media, because clients want a single vendor for both music and visuals in order to harmonize their messaging.
Finally, there’s a limited window of opportunity for Mood to push its advantage. “When you’re in the position of having a disruptive force, you want to bring that to bear across as much of a market as you can and try to consolidate it,” says Wismer. “Before Mood, it was a pretty sleepy industry. That was the story of Muzak.”
Muzak had offered to buy Mood several times, including as recently as last year. “That was a pretty quick ‘No,’” says Lanthier. Mood was growing fast, and Muzak’s technology was antiquated. But Muzak was the Goliath in the business. Over 77 years and six owners, it had built decades-long relationships with clients such as Sears and Citibank; former U.S. president Lyndon Johnson was once a top franchisee.
Muzak was on the verge of a merger with another rival when the financial crisis hit. Unable to refinance a loan, it filed for bankruptcy protection. When it came out of Chapter 11, its largest shareholder was the same hedge fund that owned the biggest chunk of Mood.
The US$345-million acquisition is “a game-changer for Mood,” says Rivkin. Muzak’s network of 300,000 commercial locations in North America has little overlap with Mood’s largely overseas clientele. Mood’s plan for its erstwhile rival is simple: upgrade Muzak’s technology and leverage its huge client base to sell other offerings—namely, royalty-free background music, video and digital signage. As well, some Muzak clients may be prospects for Mood Entertainment, the division focused on retail kiosks through which the company peddles compilations of its artists’ music. Until now, this has been primarily a CD-based business, but it has started shifting to digital distribution, whereby consumers can download songs right in the store. With kiosks currently in 18,000 retail locations, including Wal-Mart and Best Buy outlets, the division accounted for 17% of Mood’s revenue in 2010. But Abony plays down its significance to the company’s future.
The integration of two companies so different in age and culture naturally poses risks. “From an M&A perspective, more acquisitions fail because of cultural issues than financial ones, and there will be a lot of cultural change at that organization,” says BMO’s Wismer. Abony acknowledges the “change management” challenge, but says Muzak people realize the industry has changed. Muzak’s recently appointed CEO, Steve Richards, started the rebuilding process late last year and has taken the president’s role in the merged company.
While Lanthier is moving to Charlotte, N.C., to become the de facto chief integration officer, the Mood team is a big believer in letting local specialists do what they know. And Abony stresses meritocracy: “Each year, we turn over the bottom 15% of performers. All our senior managers are under 40. You can be anything you want in our company.” Which is partly why he tends to hire based on intelligence rather than skills. What Abony seeks—and attracts—are entrepreneurial types like himself: “A young, massively intelligent person is more interesting to me than one with 20 years of sector experience. The young can change on the fly. We’re creating a new business model every day. And I’m generally disinterested in working with somebody I can’t learn from or who can’t learn from me.”
As Abony leans forward in his chair, elbows on knees, maintaining eye contact while racing from one idea to another, it’s easy to see how he has managed to raise so much money: he has an answer for every objection and can turn any perceived weakness into a selling point. He also has the passion of the true believer who can’t imagine failure, something that’s fundamental to his definition of entrepreneurship. “Entrepreneur is now a buzzword,” he says. “If you work at a large company and you run a P&L, you [call yourself] an entrepreneur. Bullshit—you’re not. If you get a paycheque every week and performance reviews, you’re not an entrepreneur. Being an entrepreneur can’t be taught. It’s either in your DNA or it’s not. This is the way I’m wired. It’s like a high. The adrenaline is not always happy. There are many days when I wake up and feel like I have to throw up.”
Although Abony has two young kids and is rich enough to never have to work again, he gets his sense of self-worth from building businesses. “I don’t make those false moral platitudes like some CEOs who think they’re changing the world,” he says. “I’m in the business of padding wallets. I’m not good at much, but I’m good at taking early-stage businesses and growing them.”
As for the gleaming mansion, the sports cars, the ability to celebrate his 40th birthday last year by staging a pro tennis tournament? They’re just the prizes in the competition. “Money is like getting marks at school,” says Abony with a sly grin. “And I want to get 96%.”