HTC is having a rough year, and if a Monday report in the Wall Street Journal proves to be true, things might get even rougher. Beats by Dre is reportedly seeking to buy out the troubled smartphone manufacturer’s remaining 25 percent share in the company and look for new investors.
You might remember that HTC optimistically purchased a 50.1 percent controlling share in Beats for a reported $300 million back in 2011, only to sell 25 percent back one year later for $150 million. This was a substantial loss for HTC, as Beats had grown from less than $200 million in revenue in 2010 to roughly $1 billion last year.
Now, the founders of Beats Electronics LLC, which include Interscope Geffen A&M records chairman Jimmy Iovine and hip-hop artist Andre Young (more popularly known as Dr. Dre), are looking to expand the reach of Beats from headphones to additional consumer electronics, car audio systems, and a forthcoming online music streaming service. They are reportedly in talks with a new investor take a minority ownership stake and provide debt financing in order to buy out HTC’s remaining 25 percent stake in the company.
So what does this mean for HTC? The Taiwanese smartphone maker has loaded Beats audio into the majority of its devices, from the HTC Rezound back in 2011, to the Windows Phone 8X and the HTC One more recently. HTC places a lot of emphasis on the partnership, but to my mind, most people aren’t buying HTC phones just to get their hands on the Beats audio enhancements. This deal may have no immediate effect on sales in the short term. In fact, HTC can probably use a significant influx of cash right about now.
On the other hand, Beats does represent a significant differentiating factor between HTC and the competition. You can tell by the Beats logo on most of HTC’s devices – it’s part of what makes an HTC phone special. Without Beats a phone from HTC is a little less attractive overall. Companies like HP also use and heavily lean on Beats audio integration in their marketing, but those relationships are based on licensing. It is possible that HTC can continue to license Beats even if it no longer owns a share of the company. But symbolically, the loss of Beats would represent a further fall from the position it once held on top of the global smartphone market.
The Wall Street Journal hasn’t received confirmation on this report from either Beats or HTC, so this deal is still not officially going down. But you might want to get a glass of gin and juice ready to pour one out for HTC if does.