In a deal that could signal the arrival of a prominent new player in digital music, Beats Electronics, the company that has transformed the high-end headphone market with its Beats by Dr. Dre line, is in the process of buying MOG, an online music service.
The deal has not closed, but negotiations are in their final stages, according to three people briefed on the deal who were not authorized to speak about it publicly. The price was not known.
If completed, the deal would be a sign both of Beats’ market power and of the tightening competition among digital music companies. In less than four years, Beats, founded by the hip-hop star Dr. Dre and the record mogul Jimmy Iovine, has come to dominate the headphone field. With sleek designs and canny marketing, the company has made a symbol of high-fidelity audio as well as of high fashion.
The headphones, which sell for up to $500 a pair, have spawned a growing field of deluxe, celebrity-branded listening devices. As of last year, Beats Electronics’ annual sales were nearly $500 million.
Beats has also been primed for expansion. Last summer the Taiwanese cellphone company HTC paid $300 million for a majority stake in it. A deal with MOG, whose technology is admired but which has failed to gain much traction in the market, would allow Beats to fulfill a wish Mr. Iovine has expressed in the past: offering a phone-based subscription music service that delivers high-quality audio.
MOG streams music at a rate of 320 kilobits a second, a higher standard than most online services. It also has licenses with record companies and publishers, which sometimes take years for a new company to negotiate.
A deal linking HTC, Beats and MOG “would close the loop in terms of a vertically integrated offering,” said Ross Rubin, an analyst with the NPD Group, a market research firm. “The playback device, the service and the listening device could all be optimized for Beats.”
News of the talks between MOG and Beats was first reported by Business Insider. Representatives for Beats and MOG declined to comment, but on Tuesday HTC issued a statement saying, “Rumors and speculation of an acquisition of MOG by HTC are untrue.” The people briefed on the deal said that Beats, not HTC, was the negotiating party.
MOG was founded in 2005 as a way to connect music blogs, and it still operates an advertising network for blogs that the company says produces half of its revenue. In 2009 it introduced a subscription streaming service for $5 to $10 a month.
Last fall, to take advantage of a new media platform on Facebook that allowed increased sharing, MOG also began to allow a limited amount of free access. David Hyman, the company’s chief executive, said recently that it had 500,000 active users. The company has not said how many of them were paying subscribers, but music executives estimated that the number was well below 100,000.
The online streaming market has become crowded and competitive in recent years, with players like Rhapsody, Spotify and Rdio, and analysts have long been predicting that some consolidation was inevitable. Late last year Rhapsody bought Napster, a rival service, from Best Buy, which brought its subscription rate to one million.
“The market today is just not large enough to sustain all the players as independent entities,” Mr. Rubin said.
Spotify, which is available in 13 countries, announced in January that it had three million paying subscribers. And at the South by Southwest festival last week in Austin, Tex., Sean Parker, who is on Spotify’s board, predicted that Spotify would “overtake” iTunes in less than two years.