How Would Beats Deal Pay Off For Apple?

The deal is still not done but the talk — pro and con — has been as incessant as the backbeat leaking from a pair of headphones ever since Financial Timesbroke the story Thursday that Apple was considering a whopping $3.2 billion purchase of Beat Electronics’ audio equipment and music steaming service. 

Apple would be “paying a hefty premium for cool,” FT’s Matthew Garrahan and Tim Bradshaw write while pointing out that “Apple executives have admitted that its brand is in need of a revamp” in emails that surfaced during its patent trial with Samsung.

Few Wall Street analysts think it would be a good deal for Apple, CNNMoney’s David Goldman reports, citing Piper Jaffray analyst Gene Munster in particular: “Beats would, of course, bring a world class brand in music to Apple, but Apple already has a world class brand and has never acquired a brand for a brand's sake.”



And the New York Times’ Sydney Ember compiled reactions across the web that are perhaps best summed up by the tweet: “Apple's acquisition strategy is BAFFLING.” 

“Baffle” also surfaced in the hed on Neil Hughes’ roundup of reactions on Apple Insider.

“I cannot do the math on the offer,” Forrester Research analyst James McQuivey said in a Los Angeles Times piece by Ryan Faughnder and Chris O'Brien. “Nothing that I can compute adds up to $3 billion.”

But Beats headphones and speakers would give Apple “premium products that seem in line with its own premium brand image,” Faughnder and O'Brien point out. “Beats products are offered at many Apple stores, an endorsement of their quality by the company.”

Besides the hardware, “the deal could also be Apple’s entrée into the streaming business, where it has recently experimented with limited success,” wrote the Washington Post’s Gail Sullivan. “Subscription services such as Spotify and Rhapsody are the biggest growth area in the music industry.”  

“The age of digital downloads is basically over,” Aram Sinnreich, a media professor at Rutgers University who studies the intersection of technology and music, told Bloomberg’s Adam Satariano.

Indeed, TechCrunch’s John Biggs thinks the deal makes “perfect sense” for Apple, even if nobody is quite sure why yet. 

“Beats is a marketing miracle,” he writes. “The company has risen again and again out of the ashes of failed partnerships, first with Monster Cable and then with HTC. Beats survived being glommed onto HP laptops and it has thrived despite endless hoots from self-style audio gurus. Put simply, Beats is an expensive, popular brand that to the consumer is well worth the investment if you’re outfitting your digital wardrobe.”

“Sure, every tech pundit with Internet access has weighed in on why the $3.2 billion deal is good or bad for Apple, but before you make up your mind,” VentureBeat’s Harrison Weber invites us to take a look at a timeline he’s compiled that shows “how Beats Electronics evolved into the accessory powerhouse it is today.” 

It starts on July 25, 2008, “when rapper and producer Andre ‘Dr. Dre’ Young and Interscope chairman Jimmy Iovine co-found Beats Electronics. The duo’s first product launches exclusively in Apple and Best Buy stores and cost $349.95.”

But that first successful product didn’t come out of Dre/Iovine’s R&D lab. It was the invention of the engineers behind Monster audio cables, as Gizmodo’s Sam Biddle revealed in a piece last year headlined “Beat By Dre: The Exclusive Inside Story of How Monster Lost the World” (referenced by Business Insider’s Jillian D’Onfro). It’s a fascinating read about Monster’s father/son duo, Noel and Kevin Lee, signing an awful contract that resulted in their getting cut when Beats sold a 51% stake to HTC in 2011. Nor will they get anything out of the Apple deal. 

As bad as Monster might have been at contracts, however, they knew how to market. 

“Monster’s primary business is selling overpriced wiring to unsuspecting customers who believe the baloney printed on the package,” writes Mark Rogowsky in a Forbes piece that also defends the purchase (“Apple's Beats Deal Is Tech's Worst Acquisition, Except For All The Others,” the headline quips).

If Rogowsky’s assessment sounds harsh, consider these two quotes from Biddle’s piece: “We came up with a reinvention of what a speaker cable could be,” Noel Lee boasts. His son, Kevin, describes it differently: “a cure for no disease.”

Just don’t tell those folks who think they are suffering from it.

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