Beats Electronics may not be rolling out a branded smartphone in the very near future, but don't count out seeing one in stores at some point in the future.

Playing down an online report that a Beats-branded, HTC-manufactured "iPhone killer" was just weeks away, a source with knowledge of internal conversations told Billboard.biz that Beats, HTC and Mog are in "very early discussions" about possible products that could include a branded phone and incorporate Beats-owned subscription service Mog.

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Beats and HTC would have every reason to talk about just such a device, however. Smartphones are something of a winner-take-all market. Canaccord Genuity estimates that Apple and Samsung took 71% and 37% the world's smartphone operating profit in the second quarter, respectively (their share of profits exceed 100% because some of their competitors lost money). In contrast, HTC's operating profit gave it a low, single-digit share.

Taiwanese smartphone manufacturer HTC owns 25% of Beats Electronics, the company behind the well-known and influential Beats By Dr. Dre brand. But HTC is in financial distress. In the second quarter, the company's revenue fell 44.5% and net profit fell 58%. Its previous quarter was no better. Revenue fell 35% and profits dipped 70% from the prior-year period. HTC has the supply chain, the carrier relationship and the need for improvement - but it needs product innovation.

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Year after year, Apple has proven consumer technology products require innovation, and profits follow successful innovation. Given the need for innovation to win a greater share of Apple and Samsung's multi-billion dollar smartphone market, it only makes sense that Beats and HTC would discuss the possibilities of using the Beats By Dr. Dre brand, technologies and expertise to create the kind of innovative product that has a chance of competing with the iPhone. Beats Electronics' ownership of the Mog music subscription service should only accelerate these conversations.

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The Beats brand has potential for further development. The earlier report at noted tech blog Boy Genius Report also claimed Beats is planning to team with a television manufacturer "like Samsung" to develop a Beats By Dr. Dre-branded connected TV similar to Apple TV. Connected TVs are likely to come after mobile devices, but Beats is a brand that can ultimately be extended throughout the living room given the right partnerships.

Questions? Comments? Let us know: @billboardbiz

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