The idea – only last August – had been to bundle HTC smartphones with the top-end bins, which retail for as much as $399. The Taiwanese company had high hopes that Beats Electronics’ cool image would take its products upmarket and turn HTC into more of a lifestyle brand.
The headphones, which aim to provide listeners with exactly the experience intended by artists, have revitalised their once-dowdy market with stylish designs and superior sound quality, and are as much a fashion accessory as a piece of kit. Beats audio software is now integrated into HTC’s more expensive phones. However, fierce competition in the smartphone market, especially from Samsung, has forced a rethink.
HTC’s market share dropped beneath 2% this year and its revenues fell 33% in June, so the firm is now concentrating on a smaller and more targeted portfolio of smartphones. It commented that the sale would provide: ‘Beats with more flexibility for global expansion while maintaining HTC's major stake and commercial exclusivity in mobile’.
HTC is now the fifth-largest mobile phone maker globally, having enjoyed a pick-up in sales after adopting Google’s Android operating system. The sale nets HTC $150m – a slight loss – and leaves it with a 25% stake in Beats and an agreement preventing its rivals from using Beats audio know-how.
The mobile maker said it will continue to work closely with Beats, which also makes speakers and audio systems for Chrysler cars. Beats’ reputation was unaffected by the deal and the company retains its $600m valuation. The business was founded in 2008 by Dr Dre and CEO Jimmy Iovine, head of the Interscope Geffen A&M group of labels owned by Universal Music.
Significantly, earlier this month, Beats bought music streaming service MOG for a modest $14m (Spotify by contrast has been unofficially valued at $4bn). MOG has 16 million tracks on offer, so that should help make the HTC/Beats proposition more appealing to consumers.
And with Spotify on only 10 million US users, there’s still plenty of market share out there if the mobile, audio and streaming outfit can get the mix right…