Company upbeat about emergence from bankruptcy

FORT MILL, S.C. (AP) — About the only quiet places in the headquarters of Muzak Holdings LLC are, believe it or not, the building’s elevators.

The omission is intentional. Muzak management wants visitors to know that the company has abandoned those milquetoast renditions of pop songs that got toes involuntarily tapping in elevators everywhere.

But while Muzak Holdings spent years reinventing itself by selling restaurants and retail stores custom “playlists” — of real songs, not elevator-music versions of them — the company sank deep into debt and lost money. Now Muzak is restructuring under Chapter 11 bankruptcy protection.

“This was a financial situation that was looming for 10 years,” said Bruce McKagan, Muzak’s vice president of content services. “This just happened at a devastating time for everyone.”

It doesn’t appear to be the day the Muzak died. The company plans to emerge from bankruptcy fairly quickly as it restructures its $436 million debt. Muzak’s filing cited assets of $324 million.

Meanwhile, Muzak has been cleared to keep operating its library of more than 2.6 million songs.

Even so, Matthew Dundon, managing director at Miller Tabak Roberts Securities in New York, said Muzak will come out of Chapter 11 into a tough spot. It figures to be hard to achieve steady growth as retailers close and fewer new potential clients emerge. Already Muzak was having trouble growing; its 2008 revenue of $249 million was essentially flat from 2007.

“The wind in 2009 is anywhere but at their back,” Dundon said.

Muzak tried last year to merge with a rival, DMX Inc., but the deal fell apart as the credit markets soured in September. Brian McKinley, DMX’s vice president of marketing, said his company might reconsider a deal with Muzak if it makes sense down the line.

What’s so costly about the business of Muzak?

After Muzak switched from playing cheesy remakes to packaging songs by their original artists in the mid-1980s, the company accumulated much of its debt by buying out franchisees who had been selling music playlists to retail outlets and offices. The company’s creditors also include companies to which Muzak pays more than $26 million annually in royalties, licensing and other fees associated with acquiring music for playlists.

Those tunes envelop Muzak’s workers the moment they pull into the parking lot and play throughout the 110,000-square foot headquarters here. On one recent day, Prince’s “Kiss” rang through the lot. In Muzak lingo, songs are tucked into one of nearly 90 playlists, or “programs,” sorted by genre, and “Kiss” is on one called “The Boulevard,” for adult R&B.

The offices were designed like a European village, complete with a central square for concerts by local acts. Wide walkways link sections of the complex. In one building, thousands of plain white shoe boxes line the walls, storing the numbered CDs from which songs have been ripped.

Nearby, things are quieter among the so-called audio architects, the people who customize music layouts for such clients as Ann Taylor, McDonald’s and Caribou Coffee.

It’s done with a mixture of science and art, and with the help of a digital library called “The Well,” from which Muzak employees select the optimal songs for sipping lattes or hawking lawnmowers. Name an artist and Muzak’s got it. It has nearly 900 Beatles titles, and close to 2,000 Elvis songs, all ready to be playlisted and sent to clients.

Audio architect Steven Pilker explains that sometimes a customer wants a simple playlist — say, all country and western. But much of the time, Muzak’s artists get to create.

“That’s the fun part,” said Pilker, a fan of electronica who got his start working in record stores.