HTC unit Beats close to buying music service MOG

Handset maker HTC Corp’s Beats Electronics is close to buying the digital music subscription service MOG for an undisclosed sum, according to a person close to the talks. The company has been in discussion with Beats for weeks and the deal could be announced within the next fortnight, according to the source. A spokesman for Beats declined to comment, as did a spokeswoman for MOG.

Last month, MOG Chief Executive David Hyman denied the company was actively trying to sell itself after reports it is struggling in the competitive music subscription business. MOG has raised more than $33 million from investors and the price being discussed will surpass the investment, this person said. MOG now has more than 500,000 active users, Hyman said earlier this month, but he did not break out how many are fully paid-up subscribers. Since integrating the music service into Facebook last fall, nearly 5,000 new users a day have tried out the site, he said.

HTC, which is the fifth largest smartphone maker in the world, has been looking to integrate music features such as Internet radio into its smartphones as a way to differentiate itself from rivals on the Android platform, as well as the iPhone. It took a controlling stake in Beats last year in a $300 million deal. An HTC spokesman said the Taiwan-based company does not comment on rumors and speculation.

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MOG could be integrated as a discounted offer to buyers of Beats’ popular ‘Beats by Dr Dre’ headphones, HTC smartphones, or in laptops made by the Hewlett Packard Co , with which Beats has a separate partnership.

Adding more to the mix

MOG was founded in 2005 by Hyman and has raised $33 million from its two main backers, Menlo Ventures and Balderton Capital. The business is only 50 percent online subscriptions. The other half is its advertising network, called MOG Music Network, which places ads on more than 1,700 music sites. According to comScore data, the MOG network receives more than 60 million unique visitors a month. MOG is in a very competitive market alongside better known names such as Rhapsody and Spotify. These companies are trying to convince music lovers to change the habits of a lifetime and subscribe to unlimited access to on-demand songs and albums streamed over the Web to a user’s PC or mobile phone, rather than buying downloads or physical CDs.

Typically, these subscription services charge around $10 a month for access to millions of songs on both a user’s PC and phone.

Rhapsody, which has been around for more than a decade, has just over 1 million U.S. paying subscribers after it bought out Napster. Spotify, which has been very successful at raising its profile since it launched in the United States last summer, had some 400,000 paying U.S. subscribers by the start of 2012.  The relatively slow take-up of paid subscriptions has been disappointing for music labels, which have struggled since the advent of digital music.

The labels had been hoping the services would be more successful at beating back piracy and shrinking the dominance of Apple Inc’s iTunes Music Store. ITunes accounts for some 70 percent music sales in the United States.

Reuters