It has been rumored for some time now that Apple was planning to purchase Beats, the music company founded by music icon Dr. Dre and Chairman of Interscope Geffen A&M Records Jimmy Iovine, and publicly confirmed it today. The total amount for this acquisition comes to $3 billion, $2.6 billion of which is stated as the “purchase price” and another $400 million that will “vest over time”. This deal makes a lot of sense for several reasons for both companies, though it remains unclear how Beats Music and Beats Electronics will be incorporated into Apple.
When iTunes first became a huge success it was thanks to the work of Steve Jobs collaborating with people like Jimmy Iovine to bring music purchasing into the digital age, allowing customers to purchase individual songs rather than entire albums and then sync the songs to their iPods. Times have now changed, and streaming services like Spotify and Beats Music are gaining in popularity at an impressive rate. These services allow customers to pay a flat monthly fee to stream as much music as they want commercial free to both mobile devices and computers. Apple has tried to enter the streaming market with iTunes Radio, but it is more similar to Pandora than Spotify or Beats Music. The language used in the press release was very specific in naming both Beats Music (the streaming service) and Beats Electronics (makers of Beats headphones, earbuds, and more), which would appear to be a clear sign that Apple wanted both the service and the hardware. Once this deal closes Apple will own one of the most popular streaming services, which they will (most likely) rebrand and introduce as a “new” service. This will vault them into being relevant to the growing number of customers who prefer to stream their music.
Music is such an important part of all of our lives and holds a special place within our hearts at Apple. That’s why we have kept investing in music and are bringing together these extraordinary teams so we can continue to create the most innovative music products and services in the world. – Apple CEO Tim Cook
For years seeing someone with white earbuds told you that they owned an Apple device of some sort, starting with the iPod. It was very nearly a status symbol to sport those earbuds, despite the fact that they were some of the worst sounding and fitting earbuds ever made. Beats Electronics has managed a similar feat, but with much greater comfort and sound quality. Beats has also made it’s way into other hardware as well, including smartphones and laptop speakers, both of which Apple just happens to make. This pairing would seem to be a very natural fit, and almost every product Apple makes could stand to benefit from Beats technology including the Mac, iPhone, iPad, and iPod.
As mentioned above, the iTunes Store becoming a reality only happened thanks to the relationships Apple formed with folks in the music industry, including Jimmy Iovine. His extensive connections in the music industry constitute the third piece of this very expensive trifecta for Apple. Acquiring anyone for $3 billion better have clear benefits, and when you look at this deal on the surface at first you don’t really see the Beats brand being worth the price tag. But when you look at the streaming service along with the hardware along with Jimmy Iovine, the cumulative deal makes a lot more sense. Having someone like him on your board when you’re trying to broker deals with record companies makes an enormous difference. Obviously, Apple has relationships with companies in the record industry, but Jimmy Iovine is part of that industry and has been for decades.
I’ve always known in my heart that Beats belonged with Apple,” said Jimmy Iovine. “The idea when we started the company was inspired by Apple’s unmatched ability to marry culture and technology. Apple’s deep commitment to music fans, artists, songwriters and the music industry is something special. – Jimmy Iovine
Time will tell how Apple plans market the things that it does with Beats in the future. Beats has name recognition, but they aren’t Apple. Things like a MacBook Air “with Beats Audio” could happen, but it doesn’t seem like Apple’s style to do that sort of thing. It could be that Beats as a public facing brand completely disappears into Apple, only to be seen and heard through the new products coming out of Cupertino. Either way, it sounds good to me.