These moves come only a couple of months after the company shelved a separate deal that would have raised hundreds of millions of dollars in cash for acquisitions and investments, as well as allowing the founders to be paid a dividend without giving up their controlling interest in Beats Electronics.
The fledgling audio-products company is now in talks with an investor that could provide debt financing and possibly take a minority ownership stake in the coming weeks, said people familiar with the matter.
Beats has notched explosive growth under CEO Mr. Iovine, known in the music industry as one of its most skillful wheeler-dealers, who with Dr. Dre controls about 75% of the company. Beats' revenue shot up to roughly $1 billion last year from less than $200 million in 2010, according to people familiar with the matter.
Beats sold its first pair of headphones in 2008 for $350 apiece. The Santa Monica, Calif., company rode the growth of smartphones and tablets and popularized premium headphones partly by making them a fashion statement and partly by touting their superior sound quality.
By this June, Beats had captured 59% of the U.S. market for premium headphones, according to NPD Group. That market, which includes all headphones and earphones costing at least $99, increased by 18% last year, according to NPD. But NPD consumer-technology analyst Ben Arnold said its growth will slow, and a challenge for Beats will be establishing itself as an audio brand beyond headphones.
UMG took a minority stake in Beats partly on the theory that it would align the record company's financial interests with Iovine's moonlighting gig.
The WSJ piece ends with what some claim was the “eureka!” moment in the conception of Beats. According to urban legend, it occurred when Dr. Dre when was trying to decide between signing a footwear endorsement deal or starting Beats, and Iovine offered, "Fuck sneakers, let's make speakers."
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