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Synthesis: Apple Acquires Beats Music and Beats Electronics

Planning to close the deal later this year, Apple will pay $3 billion to acquire Beats Music and Beats Electronics. Beats co-founders Jimmy Iovine and Dr. Dre will also be joining Apple as employees.

Straight from the horse’s mouth, via Apple PR:

“Music is such an important part of Apple’s DNA and always will be,” said Eddy Cue, Apple’s senior vice president of Internet Software and Services. “The addition of Beats will make our music lineup even better, from free streaming with iTunes Radio to a world-class subscription service in Beats, and of course buying music from the iTunes Store as customers have loved to do for years.”

It is also worth mentioning that the Beats brand will remain an independent entity, unlike other acquisitions, which have been folded into the Apple brand. Peter Kafka reporting for Re/code has more:

Apple says the deal will close by the end of its fiscal year, which means by the end of September. It says the deal will be accretive [read: counted] in its next fiscal year. But Cook says the economics of the deal are secondary to the potential it generates for Apple’s roadmap: “The instant that this deal is approved, we can begin working on the future together. And I believe that that future is better than anything either company could build on its own.”

Whenever someone says the “Apple roadmap,” most of the time they mean Apple’s plans for new “hardware.” However, despite the Beats headphones being a major status symbol, MG Siegler points out that this deal is probably more about the Beats Music streaming service and Mr. Iovine’s talents and connections:

The streaming service, Beats Music, is mentioned before the better-known Beats Electronics branch. That, mixed with some of the other comments from Tim Cook suggest that this deal is first and foremost about Beats Music. […]

Dr. Dre is a nice “get” as well, given his deep history in music and the credibility he’ll also provide Apple in the space (both amongst fans and peers). But this is mainly about Iovine, who has long stood beside Apple in digital music and now will work under Cue, undoubtedly helping to further bridge the gap between Apple and the entertainment industry.

Sound accurate to me. Besides, buying an iconic, expertly curated, and social music streaming business is a much better idea than attempting any sort of Ping 2.0 comeback. Historically, Apple is not good at web-driven services, so buying a product with established (web) success is worth every billion.

Finally, Mark Gurman, writing for 9to5Mac, has a letter to Apple employees from Tim Cook:

Beats Music was built with deep respect for both artists and fans. We think it’s the first subscription service to really get it right. Both Apple and Beats believe that a great music service requires a strong editorial and curation team, and we will continue to expand what we do in those areas. The addition of Beats will make our incredible iTunes lineup even better, extending the emotional connection our customers have with music.

Admitting that Beats Music is the first to “get it right” is high praise from Apple, especially considering they have a player in the game with iTunes Radio. That, if anything, is a big indication as to how excited Apple is that this deal is happening.

My questions

Apple currently sells Beats headphones in most (all?) of its Apple Stores. Will these products get priority placement, marketing, and employee attention now?

The HTC One, HTC’s flagship smartphone, featured Beats Audio software in the company’s 2013 (M7) model but not the 2014 (M8) one. Was this because the Apple-Beats deal was ongoing? What about future Apple devices that tout “Beats” hardware or software?

Back in April, Beats Music started using Apple’s in-app purchase dialogue to sell subscriptions, giving Apple a 30% cut of the profits. To what extent (if any) did the negotiations have on the decision-making at Beats Music? I imagine it would be much easier to give Apple a 1/3 cut of your profits, when it looks like they’ll own you in a month or two anyways.

Wednesday, 28 May 2014