Apple Shells Out $3 Billion To Get Its Beat Back

After several weeks of rumors, Apple announced that it was indeed acquiring Beats Electronics for $3 billion yesterday, along with its co-founders, rapper Dr. Dre and producer Jimmy Iovine, who will be Apple employees “100%,” CEO Tim Cook tells Re/code’s Peter Kafka. In addition, brand Beats goes on — “a rare move for a company that has almost always focused on its Apple brand,” as Hannah Karp and Alistair Barr put it in the Wall Street Journal.

“The deal is seen as Apple's effort to jump-start an uneven attempt to make headway in music streaming, the fastest-growing segment of the market, as iTunes sales decline,” writes Reuters’ Christina Farr. “Pandora Media and Spotify have raced ahead while Apple's eight-month-old iTunes Radio has not made much of a dent.”

Apple also gains the business that built Beats, of course — headphones that, despite the buzz, really aren’t that great. As Business Insider’s Lisa Eadicicco observes, Beats “received sub-par ratings when compared to its competitors.” 

But sell — at a premium, no less — they did.

“This is all about music, and we’ve always viewed that music was key to society and culture. Music’s always been at the heart of Apple. It’s deep in our DNA,” Cook tells Kafka in a Q&A about the deal. “We’ve sold Macs to musicians since the beginning of Macs. And we accelerated the music industry with the digital music revolution with the iPod and the iTunes music store.”

But that luster was lost some time ago. “Apple Pays for Lack of Vision With Beats Acquisition,” reads the hed on an analysis of the deal by Bob Lefsetz in Variety.

“The deal will make Apple ‘cool’ again by uniting Iovine's feel for ‘the culture of young people’ with Apple's ‘many millions of young peoples' credit cards,” Sony Music Entertainment CEO Doug Morris tells the WSJ’s Karp and Barr. “Apple was starting to lose their edge.” 

“Can Apple CEO Tim Cook squeeze growth out of a stagnant industry?” asks John Shinal in USA Today. “Maybe,” he answers, “— now that he's bought a company that can convince consumers to shell out $100 for a pair of ear buds.”

But it has its human assets to thank for that. “If Cook can plug the music industry cred of … Dr. Dre into Apple's marketing machine, he could boost growth,” Shinal continues, also pointing to Iovine’s ability to negotiate with record label execs.

“Steven Milunovich, a financial analyst for UBS, said he thought the bulk of the acquisition might have been devoted to hiring Mr. Iovine to handle big media negotiations, as Mr. Jobs did for iTunes music in the past,” writes the New York Times’ Brian X. Chen. “Jobs had a distortion field, and that was kind of a unique capability,” Milunovich tells Chen. “Within the music world, [Iovine is] probably the closest thing you’re going to get to it.”

In Ad Age, Tim Peterson writes that Beats has resisted the industry trend to provide a free streaming service sponsored by advertising and suggests that Apple “may want to keep it that way, at least at first,” based on its early results with iTunes radio. Dave Martin, senior VP-media at Ignited, tells Peterson that one of its clients got out of its ad deal early due to poor response.

But Petersen points out that Beats recently hired Bozoma “BoZ” Saint John from Pepsi-Cola North America's Music and Entertainment Marketing to be its first CMO and suggests that there may be innovative ways down the road “for Apple to bring marketers into the fold.”

The Beats headphone business will report to Apple marketing chief Phil Schiller and the streaming music service will report to its SVP of internet software and services, Eddy Cue, according to Reuters’ Alexei Oreskovic, who writes that the deal looks to bridge “a long-running disconnect between Silicon Valley and Hollywood.” 

“In the entertainment business, everybody is desperately insecure,” Iovine said, whereas “the guys in Silicon Valley seemed to be slightly over-confident.”

The deal, which is expected to close by September and is subject to regulatory approval, involves $2.6 billion in cash and $400 million in stock.

“I've always known in my heart that Beats belonged with Apple,” said Iovine, according to AFP. And now he does, too.

Recommend (1)