BY JEN ARONOFF - The Charlotte Observer
CHARLOTTE -- In a generic office building near Carowinds, Kurt Slep won't stop believing.
He believed 25 years ago, when his younger brother, Derek, asked him to join and invest in a new business. It became Sound Choice, the nation's leading karaoke music producer.
He believed through the 1990s, when the company's fortunes soared, making the brothers multimillionaires.
And now that piracy has laid Sound Choice low, causing revenues to plummet, he believes still. Like Elvis in 1968, he thinks it's time for a comeback.
The company is suing hundreds of karaoke jockeys, or KJs, who have swiped its songs, aiming to make them paying customers.
"I have no more 401(k), hocked up every credit card," says Slep, 53, the company's CEO. "I am back to 1985 again, debt as high as I can get. ... But I believe in it. I can see a turnaround."
Sound Choice built its reputation on meticulous reconstructions of rock, pop and country hits, with and without vocals. In an industry where tinny, synthesizer-heavy backing tracks had been the norm, Sound Choice's true-to-the-originals quality became the standard and helped lift karaoke into the cultural mainstream.
The company licenses songs from music publishers and then re-records its own versions with employees and contract musicians. It sells the results on CD, formatted to play lyrics on screen, to professional KJs, bars and restaurants, retailers and the public.
By 1999, Sound Choice's best year ever, it had $12 million in sales and 85 full-time employees, plus local musicians who worked on contract.
But then easy digital copying and online file-sharing took hold, and the bottom line began to steadily erode. By the mid-2000s, when Sound Choice would release a new CD it would show up on the Internet, for sale on pirated hard drives. The company could not sell enough to cover its costs.
It laid off all but 10 employees. In 2007, it sold its 18,000-song back catalog, which cost $18 million to record, to a Canadian company for $4 million, and now licenses it back. It once cranked out 100 songs a month but has recorded only about 120 new karaoke tracks total in the last three years.
Slep figures Sound Choice products make up about 70 percent of karaoke songs played. Yet like other media upended by the spread of content readily accessible online, and often free, Sound Choice has seen its business model disintegrate.
When the company started, people were willing to pay for music and got water for free, Slep says; now, it's the reverse. In 2009, revenue was about $1 million. The company hopes it will be at least $1.5 million this year.
"We've gone through a lot here," Kurt Slep says, in his office on a hallway lined with mostly empty rooms. "This place used to be full of people."
Sound Choice's future now hinges on converting pirates to paying customers. In addition to filing lawsuits against professional KJs, Sound Choice is selling them an exclusive package of 6,000 of its best songs, as MP3s for the relatively low price of $4,500. If that works - Slep says it's starting to - then the company plans to ramp up production of new music.
"People are asking for it," he says. "But my answer is, 'I'll record it when you buy it.'"
1985: Before 'karaoke'
Kurt and Derek Slep had never heard the word "karaoke" when they started Sound Choice in 1985. Derek, an audio engineer who's now 47, wanted to open a franchise of a small recording booth owned by a man he'd interned for as a college student in Nashville. The booth let visitors record themselves singing along to vocal-free versions of popular songs, the backing tracks pre-taped by Nashville musicians.
Kurt, then a chemical engineer with Celanese in Charlotte, sensed that textiles were declining and was looking for an investment opportunity. More than 20 banks had turned Derek down, but Kurt devised a business plan and invested $25,000. They opened their booth at Carowinds in 1985, and by the next year had expanded to two other theme parks.
Demand for new songs was intense and the owner of the original booth, in Nashville, couldn't keep up. At the same time, they noticed people were interested in buying the background music separately. So Derek turned part of his apartment into a studio, where the Sleps made their own sing-a-long sing-along tapes, as they were initially called.
When times were flush, the company jumped on popular songs immediately and sometimes re-recorded top-selling artists' entire albums. Now, Kurt Slep says, it has to wait for what it thinks will be hits people will want to sing for years.
Sound Choice is known for its faithful recreations of rock and heavy metal tunes, but it also offers products for everything from nursing homes to day care centers. A series for "mature singers," called "Reminiscing," contains songs from the 1900s through 1940s.
In each case, the company's musicians pick out all the different instrumentation by ear, transcribe the lyrics and write production notes. Nipe, 37, and recording engineer Paul Jensen, 48, , decode how songs were originally recorded, and with what equipment, so they can reproduce them exactly.
Sound Choice's struggles come as karaoke is arguably more popular than ever and demand for new songs is strong, industry observers say. But few manufacturers are producing much music, says Peter Parker, publisher of California-based Karaoke Scene magazine. Because of illegal distribution, there isn't enough money in it. Fly-by-night, unlicensed knockoffs with cheap instrumentation are cropping up, too.
'The Motown of karaoke'
Brian Raftery, author of "Don't Stop Believin': How Karaoke Conquered the World and Changed My Life," says Sound Choice brought legitimacy to a medium others didn't take seriously.
"They really were kind of like the Motown of karaoke bands," he says, "like a hit factory that didn't write their own hits."
"There really are a lot of terribly made karaoke songs out there, and it really takes away from the fun of getting up and singing," he said. "[But] a Sound Choice song ... would sound exactly like the song you performed a bunch of times in your head ... and that was incredibly empowering."
Raftery says Sound Choice put a lot of faith in consumers' ambition to do karaoke well. But he fears its painstaking approach to song selection may be holding it back from capitalizing on new technology, like online crowd-sourcing and fundraising, to better discern which songs people want and quickly.
Can company recover?
"I worry, as a lot of their fans do, that they won't be able to get back to their past glory," he says. "I'm rooting for them, and I think a lot of other people root for them, too."
Though Sound Choice has recorded a handful of tracks in recent months, including Carrie Underwood's "Undo It" and a Taylor Swift song, its last full album came out in March, filled with top hits of 2009. Slep says he knows the company can't survive forever on its back catalog. For now, its business model has shifted to recovering assets.
Investigators around the country are searching for KJs playing pirated music. Lawyers working on contingency will sue, asking them to prove they've paid for it. The goal is to encourage defendants to settle and become paying customers. Sound Choice asks that they pay what they would have if they'd bought the music legally, not punitively.
About half the 120 suits filed earlier this year have been settled. One man in Florida was running 40 shows a week with eight systems, and settled for $60,000. More than 300 suits are set to be filed this month.
The company has also started a sort of amnesty program for KJs, offering 6,000 of its most popular songs in MP3 format for $4,500. People Kurt Slep suspects are pirates will call to order discs, he says, claiming that they're just getting into the business or that their car was broken into. Slep says Sound Choice doesn't care about their reasons as long as they pay.
Both sales and lawsuits are picking up, Slep says. . But he estimates there are about 25,000 pirates operating, so there's still a way to go.
To generate extra income, Sound Choice is renting office space and studio time to outsiders. The company hopes to resume karaoke production soon. Because of its reputation, Slep says, the company is still in a better position than competitors to capitalize on karaoke's popularity.
Sound Choice is reassembling its musical team and aims to begin recording new releases again in October. By then the new lawsuits should be paying dividends and improving cash flow.
