HTC has been accused of being part of a plot by Beats to trigger a clause in a contact between Beats and Monster that has resulted Apple who now own Beats and Monster being dragged into a messy US Court case.
Back in 2012 HTC invested $300M to buy a share of Beats, 6 months later HTC had a change of mind and decided to bail out on their Beats investment, In 2014 Apple paid US$3.2 Billion to buy Beats.
Monster CEO Noel Lee whose products are distributed by Convoy in Australia now claims that he was allegedly betrayed by Dr. Dre and Jimmy Iovine and cut out of Beats’ $US3.2 billion sale to Apple and that HTC played a role in that betrayal.
In the early days of Beats, Monster was the manufacturing partner who manufactured, marketed, and distributed Beats headphones, paying Dre and Iovine a 19% fee for using both the Beats name and their celebrity cache. But Lee says that wasn’t all Monster brought to the table.
Lee claims he came up with the whole idea. “[Dre and Iovine] were talking about building a better speaker, and I said, ‘Headphones are the new speakers. Let’s make headphones together.’ And that’s where Beats came from,” Lee told Bloomberg.
Dre and Iovine, of course, dispute this. According to Iovine, he and Dr. Dre came up with the idea for Beats when they bumped into each other on the beach, and while it sounds like the idea did evolve from sneakers to speakers to speakers and headphones, Iovine says that all happened on the beach.
Lee is currently suing Dre, Iovine, and the phone company HTC, accusing them of masterminding a sham acquisition of Beats by HTC to trigger a specific clause in Monster’s contract. That clause allowed Beats to end its manufacturing agreement with Monster if there was a change in ownership of the company.
“We didn’t think that much about it,” Lee said to Bloomberg. “We saw ourselves as in business with Dre and Jimmy for the long term.” What he didn’t count on was Dre and Iovine selling the company to HTC and then buying it back. And Lee claims it was all to lay groundwork for the Apple acquisition.
If Apple believes there is any kernel of truth to Lee’s version of the history of Beats, it’s doing a good job hiding it. Though Apple is not named as a defendant in the lawsuit, its lawyers are defending Dre and Iovine. And they are coming out swinging.
The HTC acquisition of Beats has dumfounded many as the Company was at the time struggling to hold onto market share in the smartphone market up against a surging Samsung.
Back in August 2012 Beats, sold 50.1 percent of the company to HTC for $300 million. Twelve months later HTC said that it was selling half of that stake back for $150 million.
In the year after taking majority control of the company, HTC claims that they were facing a management shakeup, dwindling market share, and a falling stock price.
During the same period, HTC said that they were struggling to meet their financial commitments and had to sell.
Ironically and leading up to the deal with HTC, Beats was on a roll. The company was searching looking for investment to help it fund expansion into new markets and product categories.
In April 2013, Winston Yung, the HTC executive who was credited with pushing the acquisition of Beats, was moved out as chief financial officer.
Dre and Iovine, now dispute Noel Lees claims regarding HTC. According to Iovine, he and Dr. Dre came up with the idea for Beats when they bumped into each other on the beach, and while it sounds like the idea did evolve from sneakers to speakers to speakers and headphones, Iovine says that all happened on the beach.
I was walking down the beach one day and I ran into Andre Young, Dr. Dre.
I was exercising, and I said, ‘How’re you doing?’ And Dre is very soft-spoken, doesn’t talk much, he just said to me, ‘Yo, my lawyer, he wants me to sell sneakers – what do you think?’
I said, ‘Dre, nobody in the world cares about how you dress or will care about your sneakers. What you should sell is speakers.’ At that moment, he said to me, ‘We can do that?’ And I said, ‘F- yeah.’
He said, ‘You know I use this word ‘beats, you know, I make beats, right, so ‘Beats by Dr. Dre.’
I said, ‘OK, headphones . beats . by Dr. Dre – headphones and speakers.’ He said, ‘I’m in,’ and that was the beginning of the company, and that’s exactly how it happened.
Bloomberg recently wrote that the most fateful product test of Noel Lee’s career took place in 2007 on a sunny day in Santa Monica, California.
Starting in a proverbial suburban San Francisco garage, Lee had built a successful company called Monster that made and sold high-end speaker cables. In the mid-Aughts, he decided consumers would part with a couple hundred dollars for a more stylish set of headphones.
After burning through millions of R&D dollars, Lee finally got a meeting in the office of entertainment magnate Jimmy Iovine, co-founder of Interscope Records.
Joining Iovine was his business partner Andre Young, better known as Dr. Dre, the rap pioneer and a mogul in his own right. It would be difficult to identify a duo whose influence on popular culture in the 1990s exceeded that of Iovine, collaborator with everyone from Bruce Springsteen and U2 to Eminem, and Dre, a member of the seminal hip-hop group N.W.A., known for such anthems of black anger as F— tha Police.
A large man with a shaved head, Dre put on Lee’s headphones. He turned up the volume on 50 Cent’s bass-heavy In Da Club. “That’s the s—!” he exclaimed.
Beats by Dr. Dre, the headphones built by Monster and backed by Dre and Iovine, reshaped the audio marketplace almost from their debut in January 2008. Lady Gaga, Justin Bieber, Sean “Diddy” Combs-all wore their signature branded Beats models marked with a lowercase “b.” LeBron James and Serena Williams favoured Beats; so did British soccer idol David Beckham and Apple co-founder (and long-time Iovine friend) Steve Jobs. The candy-coloured headphones became required accessories not only for celebrities but also for subway riders and mall rats everywhere.
