The obvious answer is that MOG simply didn’t have that many users. MOG had never broken out the number of paying subscribers, but the company’s CEO David Hyman said in February that it had a total of 500,000 active users,  which included users of its free service tier. To compare, Spotify announced in January that it had reached three million paying users worldwide.

But there’s another reason for MOG’s low valuation, and it has nothing to do with its popularity: MOG’s music licenses are of limited use for any buyer, HTC included. This was pointed out by former MOG employee and web audio pioneer Lucas Gonze when rumors of the sale bubbled up in March. Back then, Gonze wrote on his blog:

“Companies like MOG, Spotify, and Rdio rely on negotiated deals with record labels. Those deals usually contain clauses that make the deal non-transferable in case of a change of ownership.”

I asked Beats about this, and a spokesperson replied via email:

“Mog the music service and the rights they retain will remain the same today as they were last week pre-aqusition.”

That’s decidedly vague, but makes some more sense if you put in in the context of the acquisition announcement itself. Monday, Beats announced that “MOG’s music service will continue to operate as an independent company,” which may just be what it needs to do in order to not lose those precious licenses. Or maybe it’s part of a deal hammered out between the labels and Beats during those long months ever since the first sale rumors surfaced in March. Maybe one day, we will know why selling MOG for so little took so long.

However, one thing is already clear: HTC won’t just be able to take the licenses MOG originally negotiated with the labels and use them to launch its own, Beats Audio-branded music subscription service for HTC handset owners. To do so, it has to go back to the negotiating table. The same would have been true for any other potential suitor, which explains why in the end, MOG was worth so little.

So why did HTC buy anyway? Because it’s one of the few companies that doesn’t actually have to worry much about music licensing. Again, Gonze:

“It happens that one of the major stakeholders in Beats is Jimmy Iovine, who is also a lead at Universal Music. That’s not to say that in this deal UMG is getting ownership of MOG (they already have equity anyway). It is to say that getting Universal’s blessing is pretty much a done deal. And where Universal goes, Sony and Warner go, because Universal is the 600 pound gorilla of labels.”

And of course, it only helps that Universal also has equity in Beats. In other words: HTC is a perfect buyer for MOG – but there aren’t many other companies in its position, which meant it could pick up the subscription service on the cheap.

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USA Today‘s report on the story lacks any real deal details. The Los Angeles Times reports that MOG CEO David Hyman is expected to stay with the company.

MOG founder and CEO David Hyman

The MOG-Beats sags is pretty long. In early February, just ahead of the big Mobile World Congress show, I had reported that HTC, with Beats, wanted to launch its own music service. A month later further rumors emerged that HTC might have bought MOG. My colleague Janko Roettgers later confirmed that indeed that HTC/Beats had exchanged term sheets with MOG. A few days later, some of my sources told me that the company might have been sold for around $14 million, but others close to the company said that the sale price is significantly higher. MOG had raised $25 million in venture capital funding.

Regardless of the price, the deal is a good indicator that it is insanely hard to build a big, sustainable business as a music startup. Who wants to bet that Rdio is the next one to get snapped up?

Business aside, I am happy for MOG CEO David Hyman for being able to find a home for a startup that he started in 2005. It takes a lot of perseverance to get through the ups and downs of startup life, especially one in the rough-and-tumble world of music.

Related, from GigaOM Pro Research (subscription required): Spotify, MOG demonstrate digital music flux)

The new handset is part of HTC’s strategy to turn around flagging handset sales with a single line of high-end phones called the One. The One X includes Beats Audio support, a 4.7-inch 720p touchscreen display, a dual-core 1.5 GHz Qualcomm Snapdragon S4 processor, and 8 megapixel rear camera with large aperture. HTC’s newest version of Sense user interface sits atop Google Android 4.0.

Normally, I’d consider a phone with these specifications and features to be a “flagship” handset for any carrier. Given that AT&T has told me that the Nokia Lumia 900 is the operator’s new “hero device”, I wonder how the carrier will market the new HTC phone. When we see the marketing, we might get a better hint as to how good — or bad — the Windows Phone-powered Lumia is really selling for AT&T.

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HTC CEO Peter Chow and Jimmy Iovine

HTC Corp., one of the earliest champions of Android-based smartphones seems to have fallen on hard times, thanks to growing power of Samsung and Apple. But the Taiwanese phone maker isn’t ready to call it quits and is said to be working on a slew of new products including a new tablet, new phones and possibly a music streaming service, according to sources familiar with the company’s plans.

My sources say that HTC, which last year acquired a substantial stake in Beats Audio, a company started by  Jimmy Iovine and Dr. Dre, is said to be working with Iovine, a music industry iconoclast to develop a streaming service that will be offered as a default music client on HTC phones and tablets. My sources say that the company is still working on pricing plans and other details. It has long harbored ambitions of offering a music service on HTC devices, folks familiar with HTC say. A spokesperson said that the company doesn’t comment on rumors and speculation.

In an interview with The Los Angeles Times last year, Iovine had said:

“Getting Beats audio into HTC phones is one of the first things we’re going to do…We are going to be in business with HTC and they’re going to help us and were going to help them in every way they can. And you’ll see Beats audio in just about every phone or tablet they want it to be in, but they know what we’ve built and respect the brand and will help us continue to innovate and push Beats further.”

HTC in the past is said to have held talks with companies such as Spotify, but those talks didn’t go anywhere. Iovine is perhaps one man who could get the record labels to sign up for this streaming service. Interscope Geffen A&M Chairman Iovine is viewed as one of the most powerful men in the music industry. Apparently Iovine isn’t a fan of Spotify. Many executives in the music industry are fearful of creating an iTunes-like monopoly in Spotify and thus can band together.

The company is also working on a wireless boombox that would most likely stream music from HTC phones over Bluetooth. The company currently sells a wireless boombox that is made by Monster, till recently a partner of Beats Audio. Iovine has been very public about his desire to go after other audio products as well. Beats Audio recently had a very public and ugly divorce from Monster, the stereo accessory maker. In January Business Week reported:

Though both companies publicly say the separation is amicable, the relationship turned sour over financial terms, with divergent views on which side deserves the most credit for the line’s success and Beats balking at its share of the revenue, according to two people who asked not to be identified because the talks were private. While Monster manufactures and helped design the headphones, and even takes credit for the idea …. ”We have very big ambitions for Beats beyond headphones,” says Iovine. “Music has got to succeed on the phone or else the record industry will never thrive.”

But back to the music service — my sources say that it could be launched later this month at Mobile World Congress. In addition to the streaming service, HTC is going to announce a number of new products including a new tablet , at the trade show in Barcelona. During a recent conference call with analysts, the company indicated that it would be making a major push during Mobile World Congress and is said to working on LTE-based devices. LTE is the newest wireless broadband technology and a growing number of mobile carriers including Verizon and AT&T have launched superfast networks. These new phones are likely to hit shelves in the second quarter of 2012 as the company tries to stave off competition, my sources say.

HTC has seen softening of its business in recent months, something I had outlined in a post back in August 2011. The company is being squeezed by low-cost Chinese handset makers like Huawei and ZTE Corp on one end and Samsung on the top end of the market. During the fourth quarter of 2011, HTC reported miserable results. Things aren’t looking well for the company during the first three months of 2012 either.

Sources say that HTC is betting that new services could become a point of differentiation for the company, and thus help bolster its revenues. Stay tuned.

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