HTC's delusional Beats Electronics deal: $300 million case of Apple envy

HTC's delusional Beats Electronics deal: $300 million case of Apple envy

Summary: HTC's goal to become a lifestyle brand may be valid in some parallel universe, but there's an opportunity cost related to blowing a wad of cash on appealing to audiophiles.

SHARE:
TOPICS: Apple, Banking, HTC
13

HTC's move to buy a controlling interest in Dr. Dre's Beats Electronics is a big bet that music still matters on smartphones. The device maker is trying to differentiate itself from a crowded Android field, but it's unclear if HTC's maximum purchase price of $309 million is worth it. In fact, HTC's pitch that it can become a lifestyle brand may just turn out to be delusional.

In a statement, HTC said its partnership with Beats Electronics will bring "high performance sound" to its phones. The companies---Beats will continue to be run independently---will work to "create superior mobile audio experiences for consumers."

HTC's presentation indicates that HTC wants to tap into Beats' marketing zeitgeist. Umm, ok. The upshot is that HTC wants to be a lifestyle brand---much like Apple or even Tiffany. HTC chief marketing officer John Wang and CFO Winston Jung talked about connects with the entertainment industry and a broader customer base. Judging from the slide to the right, HTC wants to be a luxury brand of sorts. HTC actually made reference to Tiffany keys in its presentation!

This deal represents a $300 million case of Apple envy. Hasn't the mobile audio battle been won already? Isn't music a commodity? Dr. Dre brings a lot of credibility---as does music label luminaries such as Jimmy Iovine. The question of the day is whether this Beats gambit will work. Short answer: Hell no. Apple has already moved away from the music infatuation. Sure, iTunes dominates and is the largest music retailer, but let's face it Apple's future is the App Store. You could argue that video is more important to Apple on the mobile front.

Through that lens, HTC really looks like it is spending potentially more than $300 million or so on yesterday's war.

HTC seems to realize that there may be a little head scratching over the Beats deal. Its press release makes no mention of the price tag for this Beats partnership. On its investor relations site, HTC details the following:

  • Maximum price is $309 million. Of that sum, HTC hands over $300 million today and $9 million possible when the deal closes.
  • Beats stays independent.
  • 4 board members come from HTC and 3 appointed by Beats' original owners.

HTC's goal to become a lifestyle brand may be valid in some parallel universe, but there's an opportunity cost related to blowing a wad of cash on appealing to audiophiles. For instance, HTC spent $300 million on S3 to acquire patents that can be used to fend off Apple. HTC should keep buying patents.

Perhaps HTC's Beats Electronics deal makes sense since it accelerates the company's "entry into the youth and accessories markets globally," but the money could have been better spent elsewhere.

Topics: Apple, Banking, HTC

Kick off your day with ZDNet's daily email newsletter. It's the freshest tech news and opinion, served hot. Get it.

Talkback

13 comments
Log in or register to join the discussion
  • I think its great......

    If they can bring some great audio to a phone that will appeal to many smartphone buyers, especially the younger crowd. Yeah its alot of money, but I think they must see some value in the beats brand and I have to say Beats has come up fast and furious over the past few years so I don't think its been wasted as much as you think. There is still many other channels Beats is selling in, not just HTC and the smartphone market. HP and Chrysler to name a few and not to mention straight sales to consumers.
    OhTheHumanity
  • Beats gear

    is over priced. More power to them.
    happyharry_z
    • RE: HTC's delusional Beats Electronics deal: $300 million case of Apple envy

      @happyharry_z
      Not only overpriced, but also over-hyped, the sound quality is actually only average and I can't help feeling that 2/3 of the price is the brand name. Which, lets face it, sucks in itself everywhere in the normal world, that is, outside the dubious pop sub-culture.

      I'll stick to my Bayer Dynamic DT-150s.
      kitko
      • RE: HTC's delusional Beats Electronics deal: $300 million case of Apple envy

        @kitko

        I agree and would say the sound quality is average at best. My son spent $80 on the in ear version of these and not only is the sound average, they are poorly designed and won't stay in your ear even as you are walking.

        This is a bad deal all around.
        omdguy
      • RE: HTC's delusional Beats Electronics deal: $300 million case of Apple envy

        @kitko Average is being generous. I'd rather listen to the $5 Walmart specials or the 3-pack you can get at harbor freight for $8 than a pair of beats. "But the kids will buy them because it's Dr. Dre's brand."
        Champ_Kind
  • RE: HTC's delusional Beats Electronics deal: $300 million case of Apple envy

    Music, in particular streaming internet music, was a major use of my late lamented HTC Touch Pro 2 so I think this deal sounds good (please excuse the pun).
    nightbirdsf
  • RE: HTC's delusional Beats Electronics deal: $300 million case of Apple envy

    Maybe if they allowed users full control of their own phones I might be interested,but only unlocking the bootloader on certain models is taking the piss
    Silver Raven Wolf
  • Pure branding. Just like with HP. No actual audio improvement

    This a just a branding ploy. Still appealling to wannabe thugs may payoff for them. It's worked well for others in this world of comsumer sheep...
    Johnny Vegas
  • RE: HTC's delusional Beats Electronics deal: $300 million case of Apple envy

    So this was their big announcement. I am disapointed. I would have liked them to have focused more on their smartphones rather than buying into an overpriced, under qualitied product. Yes I say this because I have tried them. The cheap Koss brand earbuds I had sounded just as good. HTC can't even produce an unlock method for their phones before the independent developers did. When HTC first got going they were innovative and I fell in love with their hardware. They are really starting to lose focus IMHO and this will only distract them more.
    tommcd64
  • Apple envy??

    Wow. So eveything has to do with Apple?

    No wonder ZDNet can't grow into a big site like it's competitors.
    William Farrell
    • RE: HTC's delusional Beats Electronics deal: $300 million case of Apple envy

      @William Farrell You're right. HTC doesn't want to do that Apple lifestyle thing. It's really the Tiffany & Co. thing they were after. That's most bizarre slide I've seen for a while.
      Larry Dignan
  • RE: HTC's delusional Beats Electronics deal: $300 million case of Apple envy

    I think it is interesting when people second guess the leaders of large, successful businesses with such certainty. I mean, everyone is entitled to their opinion. There is nothing wrong with disagreeing with what someone else is doing. But lets face it, the author of this article has never run a multi-billion dollar business. Yet he talks like he knows for a fact that what HTC is doing is a waste of time and money. As if he knows more about the market than the people who made this decision do.

    Rick
    rick@...
  • RE: HTC's delusional Beats Electronics deal: $300 million case of Apple envy

    Listen to a pair of Focal SM9, SM6 or even CMS then once established a baseline we'll come back to talk about if the $309M deal is worth it or not... I am pretty confident we won't even be having that conversation unless you are deaf.

    BTW, it's not like DrDre is an acoustics authority or that rap and hip-hop are audio benchmarking genres. The leveraging of celebs for marketing purposes it's already and lame-alarm... but while I doubt the $309M was an well pondered investment and even more I doubt it will generate a positive ROI, there may be customers who will like the product after all and HTC may get back a couple bucks.
    freakqnc