“Jimmy is part of the fabric of Universal Music Group, and we look forward to continuing our work together for
some time.”
——a UMG spokesman

IOVINE & DRE HAVE BIG PLANS
FOR BEATS ELECTRONICS

Principals Want to Buy Out HTC, as Iovine Discusses New Deal With UMG
Jimmy Iovine and Dr. Dre are looking for cash to buy out HTC’s 25% stake in Beats Electronics, The Wall Street Journal reports. A year ago, Iovine and Dre paid $150 million to gain control of Beats from the Taiwanese phone manufacturer, which had invested $300 million in the company. HTC remains the company’s biggest outside investor. Earlier this summer, Beats tried to raise $700 million buy out HTC’s stake and pay down debt but was unsuccessful, WSJ.com reported, adding that Iovine and Dre want to bring in a new partner as they prepare to unveil Beats Music. Len Blavatnik’s Access Industries has invested $60m in the service.

Last week, the New York Post reported that Iovine was looking to sign a shorter contract with UMG when his current deal—worth an estimated $10 million to $15 million a year, according to reporter Claire Atkinson—expires at the end of 2014.

“What’s he going to ask for? A big sum,” one source close to the situation told Atkinson. A source close to Iovine described it as “an ongoing negotiation.” While UMG declined to discuss his employment contract, a spokesman for the company said: “Jimmy is part of the fabric of Universal Music Group and we look forward to continuing our work together for some time.”

Some bullet points from this morning’s WSJ piece:

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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