How’s this for swagger?
“We want to become the biggest music streaming company in the world,” Eric Boyko, chief executive of Stingray Group Inc., the Montreal-based company that packages songs for playback over cable television channels, told me in an interview recently.
It was late afternoon and hot as hell when I showed up for my appointment with Boyko. He was in a glass meeting room off the lobby with some Stingray executives and a few representatives of the music industry. An open bottle of rosé was chilling in an ice bucket in the centre of the conference table.
So it could have been the heat, the conversation, the wine, or a combination of all three that was fuelling Boyko’s bravado. But I think he was serious, which tells you something; he’s either a blowhard, or he understands that Corporate Canada can do better than dominating its home market and dabbling in the United States. Let’s go with the latter, because we need more executives like Boyko. Current events have revealed that we’re paying a price for fostering a business culture that lacks international ambition.
Here’s a taste of what Stingray is up against in its pursuit of global domination. Stockholm-based Spotify Technology SA is worth about US$27 billion. Apple Music, the other big name in the streaming business, is owned by Apple Inc., which has a market cap of about US$874 billion and a reserve of unused cash worth more than US$200 billion.
Stingray is a 12-year-old company with a market capitalization of about $370 million. The company is a welterweight gunning for the heavyweight title.
“The Spotify model is broken,” Boyko told me last month. “They pay 70 to 80 per cent (of revenue) on rights … and they are fighting against Google, Apple and Amazon. So it’s not sustainable.” Stingray’s focus is “lean-back music,” a strategy that avoids negotiating with the likes of Beyoncé and Taylor Swift. Boyko said 90 per cent of listeners just want a channel that plays songs they like, and that relatively few care whether they can access the entire AC/DC catalogue. “We want to be towards the 90 per cent and not the 10 per cent,” he said.
Can Boyko topple giants? No idea.
The company’s shares are down about 40 per cent from a peak of $11 at the end of April 2018. The S&P/TSX Composite Index was up about four per cent over the same period.
After markets closed on Tuesday, however, Stingray reported net income of $9.2 million for the quarter ended June 30, compared with $1.3 million in the same period a year earlier, as revenue surged more than 130 per cent to $80.4 million.
Stingray lost $12 million in its last fiscal year after generating net income of $2.3 million and $10.7 million in two previous fiscal years. That’s more money than Spotify has ever made. The biggest name in music streaming has yet to record an annual profit. In February, it advised investors that it likely will record an operating loss of between 200 and 360 million euros in the current fiscal year.
World-beating economies need world-beating companies that serve as anchor clients of smaller firms at home, blaze trails for others abroad, and generate outsized wealth that comes from achieving economies of scale.
The Economist noticed in its spotlight on Canada last month that we lack such companies. The top Canadian corporation on Fortune’s list of the world’s largest enterprises by revenue is Manulife Financial Corp., ranked 241st, ahead of Brookfield Asset Management Inc. at 272 and Power Corp. of Canada at 282. Decades of policy decisions have created oligopolies in banking and telecommunications, and the companies in those clusters prefer to collect their rents close to home. Alberta’s oilpatch has produced no BP Plc’s or Total SA’s. We’re an economy of local heroes, not global ones.
So when a Canadian executive expresses a desire to break out of that box, we should listen to what he or she has to say about what it will take to join the big leagues. Boyko has two main policy concerns, neither of which has an obvious champion in Ottawa.
We’re an economy of local heroes, not global ones
The Conservatives have sought to undermine the Trudeau government’s renegotiation of the new North American trade agreement by arguing that the prime minister failed to use the opportunity to end the use of “Buy America” provisions. Instead of whining about it, Boyko thinks Canadian politicians should do the same thing. Specifically, he wants governments to favour domestic companies with high-growth potential. It’s hard to secure capital in Canada; it would be easier if founders and executives could brag about their contract with the Government of Canada. “Every country does it,” Boyko said. “We should have a policy of buying local. It’s a no-brainer.”
The other policy issue on his mind is taxes. He dislikes Finance Minister Bill Morneau’s plan to tax stock options more heavily, even though the government indicated that fast-growing companies such as Stingray will be exempt. “If I’m worth $500 million and I feel that I’m going to $5 billion, why not motivate employees?” Boyko said.
Whoever wins the fall election will have to confront this issue. Canada’s comparative advantage is talent and it won’t be able to rely on being the beneficiary of U.S. President Donald Trump’s immigration policies forever. At some point, things will normalize, and when they do, the best software engineers will be attracted to the places where they can make the most money. The Canadian political class will have to get over its aversion to writing policy that will help rich people.
“It’s all about growth,” Boyko said. “If I go from $400 million to $5 billion, I create a lot of wealth.”
• Email: kcarmichael@nationalpost.com | Twitter: carmichaelkevin
