Why Beats is Music to Apple’s Ears
Apple goes for its biggest acquisition ever, buying Beats for $3 billion. It could also be changing tracks now, adding subscription-based music service to its vast storehouse of digital music
Apple, which turned digital music into a mainstream phenomenon, said that it was buying Beats Electronics, a rising music brand, for $3 billion, in a move that will help it play catch-up with rivals that offer subscription-based music services.
Apple and Beats executives said the companies would work together to give consumers around the world more options to listen to music. The Beats brand will remain separate from Apple’s, and Apple will offer both Beats’s streaming music service and premium headphones.
Apple said iTunes, which sells songs and albums and offers a streaming radio service, would be offered alongside the Beats music service.
The Beats deal brings Jimmy Iovine, a longtime music executive, and Dr Dre, the rapper, to work under Eddy Cue, Apple’s executive in charge of internet services. Dr Dre and Iovine, who founded Beats in 2006, join a list of prominent executives Apple has added to its roster, like for mer Burberry CEO Angela Ahrendts.
In an interview at Apple’s headquarters at Cupertino, Timothy D Cook, Apple CEO, repeatedly emphasised the talent that Dr Dre and Iovine would bring to Apple. He also praised the Beats music service, which creates playlists for subscribers.
“These guys are really unique,” Cook said. “It’s like finding the precise grain of sand on the beach. They’re rare and very hard to find.”
Apple is paying for the deal with $2.6 billion in cash — hardly a dent in the company’s huge cash pile of more than $150 billion — and $400 million in stock. The company expects the deal to be approved this year.
For Apple, the acquisition of Beats, expected for weeks, largely follows a familiar pattern. Apple has historically bought technology outfits that have resources and talent that it can blend into future devices and online services. Beats fits that criterion.
But the Beats deal is also different. Until now, Apple, the richest tech company in the world, has avoided billiondollar takeovers in favour of smaller deals. The Beats deal is its largest ever. Apple declined to disclose plans for products it will make with Beats, so it will take time to see how the acquisition materialises. In the meantime, it will raise questions about why Apple, the pioneer of digital music, is buying a music company instead of expanding its own products. The growth of Apple’s iTunes Store is being hurt by companies like Spotify and Pandora, which allow people to stream music freely with ads or with a paid subscription. “Apple was at the front of that curve, and if that’s the reason for the acquisition, it would lend credence to the view that maybe they’re not ahead of the curve anymore,” said Maynard Um, a financial analyst at Wells Fargo.
Cook called the deal a “no-brainer.” He said Apple had bought 27 companies since last year but that did not mean Apple had to buy those companies. “Could Eddy’s team have built a subscription service? Of course,” he said. “We could’ve built those 27 other things ourselves, too. You don’t build everything yourself. It’s not one thing that excites us here. It’s the people. It’s the service.”
Iovine said that he and Dr Dre had long admired Steve Jobs and Cue at Apple. “We met with the guys, and what we realised is they get it,” Iovine said at the Code Conference in California. “They have feel. They understand culture.” In 2002, Jobs, then the Apple chief, began persuading record companies to sell their music online. Over the years, he dismissed many calls for Apple to offer music subscription services because he believed that consumers did not want to rent songs. Now the technology industry has made a sharp shift. People consume music, games and video on the go on their smartphones. In the fourth quarter of 2013, 52% of American smartphone owners used apps for streaming music like Pandora. At the same time, much has changed for Apple. The company is no longer an underdog but the leader of the tech industry, with a lot of money to spend. Steven Milunovich, a financial analyst for UBS, said he thought the bulk of the acquisition might have been devoted to hiring Iovine to handle big media negotiations, as Jobs did for iTunes music in the past. CooksaidDrDre,bornAndreYoung, and Iovine would work with Apple on the next generation of music offerings. He said they would be working on “products you haven’t thought of yet, and seeing around the next corner to articulate the way to take music to an even higher level than it is now.”
The New York Times
FOUR IS COMPANY: (From left) Music executive Iovine, Apple CEO Cook, rapper Dr Dre, and Apple’s executive in charge of internet services Cue. As part of Apple, Iovine and Dr Dre will work under Cue