????Is audio equipment maker Beats Electronics -- popularized by big-name celebrities like Dr. Dre and Lady Gaga -- on the verge of acquiring music subscription service MOG? Neither company would confirm a tie-up, but rumors to that effect have been gathering steam online all week. Here's why such a deal would make sense -- most of all for Beats parent HTC.
????All three have strong businesses with break-through brands, but each find itself in crowded markets with fierce competition. Bringing together could help them in the tussle.
????The Taiwan-based phone maker HTC, founded in 1997, seemingly came out of nowhere in 2008, breaking out as a formidable presence in the cellular market thanks to its slick handsets based on Google's (GOOG) Android platform. At a time when Apple's (AAPL) iPhone dominated the smartphone spotlight, HTC managed to pump out phones with larger screens and other glitzy features. It was a surprise darling with consumers too, briefly becoming the largest smartphone maker in the U.S. market in the third quarter of 2011 as shoppers waited for a new iPhone model to debut. In a sign of its ambitions beyond phones, HTC bought a controlling stake in Beats for a reported $300 million in the summer of that year.
????But HTC has come back down to earth. Competitors like Samsung and Motorola caught onto its playbook, squeezing its business on quality and price. Apple, meanwhile, hurt HTC when it introduced the iPhone to Sprint, eating up much of HTC's market share with the carrier, according to the NPD group, a research firm.
????MOG is a tough spot too. The online music market may have begun with the chaos of Napster in 2001, but it has developed a rigid caste system. Streaming services now allow users to access large music libraries from a computer server instead of owning the songs themselves. MOG is third-tier to Rhapsody and Spotify.
????Founded in 2005 as a music blog network, MOG has a catalog of 14 million songs and charges $10 a month for mobile access, roughly equivalent to its competitors. Online music subscription revenues were about $201 million in 2010, the most recent year the data is available, according to the Recording Industry Association of America. Research firm ABI predicts 161 million subscribers worldwide will be accessing music through mobile phones by 2016.
????Of the three brands, Beats appears the strongest. Aside from its headphone operation, Beats, which was founded in 2008 by hip hop veteran Dr. Dre and record executive Jimmy Iovine, also sells its "music compression" technology to other businesses. This allows music to keep its crispness when it is digitized into sound files. Beats licenses this technology to companies like Hewlett-Packard (HPQ), which uses it in some of its high-end notebook lines.
