Lorne Abony knows a timely niche when he sees one. In 1998, he co-founded an online pet-supply company, Petopia, which raised more than US$100 million in capital before the dot-com bust spoiled everything. In 2001, Abony started a gaming company, called Fun Technologies, which raised US$160 million, went public and was eventually acquired by U.S. media giant Liberty Media for US$500 million.

Enter the PROFIT 500 ranking of Canada’s Fastest-Growing Companies now!

Then, in 2007, an entrepreneur whose gaming site was bought out by Fun Technologies introduced Abony to another opportunity: user-generated music. The entrepreneur’s site, Fluid Music, had the rights to play or resell, royalty-free, 1.7 million songs uploaded by artists eager to get their music out. Abony bought into the company and figured out the best way to exploit that unique asset: by packaging the music to retailers for playing over in-store audio systems. (Research shows that background music influences consumers and can increase average purchases by 18%.) Dominated by giants such as the iconic Muzak Holdings, the in-store music business had one tragic flaw: most of the revenue went to pay the royalties due to composers. Fluid’s royalty-free inventory gave it a huge price and profit advantage, which Abony used to acquire a stable of competitors—including, last year, Muzak itself.

With 2010 sales of US$145 million, Toronto-based Mood Media Corp. (Fluid Music adopted the name of a Luxembourg company it acquired in June 2010) topped the PROFIT 200 list last year, with five-year sales growth of 72,384%. Thanks to the US$345-million Muzak acquisition, Mood Media posted 2011 revenue of US$330.5 million—up from US$2.3 million in 2006. Its five-year growth rate of 14,215% is good for second place on this year’s PROFIT 200.

Everything about the new Mood Media is big. Muzak added 275,000 new retail locations; Mood Media now has 2,300 employees and offices in 48 countries. And, notes Abony, “We now have the largest music library on planet Earth.” But Abony, of course, is looking ahead. In fact, he says Mood Media’s future won’t be driven by music at all—the company is now hoping to translate its existing relationships with global retailers (ranging from Burger King to JCPenney) into dominance of the growing U.S. market for in-store digital signage. “Digital signage is exploding,” says Abony. “In Europe, it accounts for 25% of our revenue; in France, it’s 50%. Its growth trajectory is phenomenal.”

He estimates that U.S. market penetration of “appropriate digital signage” is only about 1% (compared with 50% for in-store audio). But things are changing, especially given the Obama administration’s decree that all fast-food restaurants must display nutritional information more prominently. “It’s necessitating huge growth in digital message boards,” Abony explains.

Enter the PROFIT 500 ranking of Canada’s Fastest-Growing Companies now!

The lure of digital is undeniable. Restaurants can change their menu offerings daily; supermarkets can push perishable items; and luxury-goods retailers can run constant commercials for their most high margin items. With Mood Media’s Internet-based software, Abony says, the company can offer customized services at the individual store level, which is a significant improvement over satellite-delivered audio and video services, which broadcast the same message from Boston to Bakersfield.

Abony says Mood Media is on track, selling more digital-signage systems in January 2012 than it did in all of 2011.

Mood Media’s competition in this field ranges from tech giants such as Microsoft and Intel (which are just beginning to become active in the market) to local entrepreneurs with homemade solutions. Abony knows it’s all about gaining market share now, because retailers traditionally like to pick a solution and stick with it—the average Muzak client has been with that provider for 17 years.

He also says Mood Media has an edge in this battle: “The dirty little secret of this business is that you have to make sure your messaging is consistent between your video displays and your background music.” Abony wants Mood Media to raise the number of products it sells to 1.4 per retail client from the current figure of 1.2. But he takes nothing for granted: “I never underestimate how smart my competitors are, or how hard they work.”

Enter the PROFIT 500 ranking of Canada’s Fastest-Growing Companies now!

Securities analysts give Mood Media good marks for integrating the Muzak business, and for using a US$114-million share issue to finance the March acquisition of another U.S. in-store media company, DMX Holdings. A recent Standard & Poor’s review noted that Mood Media still has “aggressive debt leverage” and a “lack of business diversity” but concluded that the company is heading in the right direction. S&P raised its assessment of Mood Media’s business-risk profile from “vulnerable” to a slightly improved “weak.”

But Abony sees nothing weak in his business plan: “This industry has all the Graham/Dodd value-investing characteristics: recurring, high-margin revenue and barriers to entry. Yet, all the potential of a disruptive startup.” Of course, he wouldn’t have it any other way.

To view complete PROFIT 200 rankings, click here.

Loading comments, please wait.