After a few leaks and the best unofficial press release ever, Apple has finally confirmed that they are indeed acquiring Beats. Was the price shaved by a few hundred million because Dr. Dre got drunk with Tyrese? We may never know.
But a rumored deal that left everyone with questions, now seemingly has a bunch of answers. Maybe not directly, but right there in front of our faces in Apple’s own press release about the deal. And they’re in line with my “Occam’s razor” thoughts from a couple weeks ago.
Why is Apple buying Beats? The opening line of the press release seems to say a lot:
Apple® today announced it has agreed to acquire the critically acclaimed subscription streaming music service Beats Music, and Beats Electronics, which makes the popular Beats headphones, speakers and audio software.
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.
Consider also that it’s Eddy Cue, Apple’s SVP of Internet Software and Services, and not Jony Ive, Apple’s SVP of Design (including industrial design, of course), or Dan Riccio, Apple’s SVP of Hardware Engineering, who is quoted in the release after Cook.
“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.”
More on the iTunes comment in a second.
The second key aspect of the deal appears to be Jimmy Iovine, who is quoted in the release immediately after Cook, and then gets his own love poem from Apple in the very next paragraph:
Iovine has been at the forefront of innovation in the music industry for decades, and he has been an instrumental partner for Apple and iTunes® for more than a decade. He has produced or collaborated with some of the most successful artists in the history of the iTunes Store®, helping make it the world’s number one music retailer. Iovine and Dr. Dre are sound pioneers, artists and entrepreneurs.
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.
Finally, there’s Beats Electronics, the actual business that most people associate with Beats. It gets a mention in paragraph five, but only briefly:
Beats Electronics has brought the energy, emotion and excitement of playback in the recording studio back to the listening experience and has introduced an entirely new generation to premium sound entertainment.
After that quick mention, it’s right back to more love for Beats Music.
It’s not until paragraph seven that we get to the meat of the Beats Electronics aspect of the deal (right before the regulatory disclaimer):
In just five years since launch, the Beats “b” has become the brand of choice in the music and sports worlds, and is the market leader in the premium headphone market. Music superstars including Lady Gaga, Lil Wayne and Nicki Minaj have designed their own customized Beats headphones and speakers. Fashion designers and street artists such as Alexander Wang, Futura and Snarkitecture have collaborated on special limited products, while renowned athletes including LeBron James, Serena Williams and Neymar use Beats as a critical part of their training and game day process. Beats has quickly become part of pop culture in the US and with the acquisition the Beats product lineup will be offered in many more countries through the Apple Online Store, Apple’s retail stores and select Apple Authorized Resellers.
Apple views Beats, the headphones, as a fashion accessory. And, as a bonus, it’s one that provides even more credibility with musical artists and fashion designers and athletes. This component isn’t the reason Apple is doing this deal, but it’s a nice three-stemmed cherry on top.
And it’s a cherry kicking off significant revenue, mind you. It’s important not to downplay that aspect. Apple may not be doing this deal for Beats headphones, but the fact that they pull in a good amount of money just makes this deal a no-brainer for Apple.
Honestly, I’ve been confused as to why others have been so confused by this deal. In buying Beats, Apple gets three key things:
- A music streaming service that can be run fully separate from iTunes, meaning it won’t entirely kill the download business (until they’re ready to merge the two down the line). And, perhaps more importantly, they get the team behind the Beats Music service rather than having to task those already working on iTunes to do something different.
- Jimmy Iovine, who has long supported Apple in the music business and was instrumental in helping to get iTunes off the ground in the first place (and, of course, was a friend of Steve Jobs). He’s probably the person best poised to do the vital deals with the entertainment industry going forward.
- The headphone business, which happens to make quite a bit of money. Sure, people complain about the quality of the headphones, but that’s something Apple can undoubtedly fix with relative ease. And I’d bet Apple’s insane supply chain management can probably make better Beats headphones while making them cheaper to produce. Win. Win. And, of course, it doesn’t hurt that they’re a fashion accessory which newly appointed SVP of Retail and Online Stores, Angela Ahrendts, she of Burberry fame, can sell.
The only real argument I see is with the $3 billion price. But $3 billion to you or me is not $3 billion to Apple. Or to any other company, for that matter. Apple makes roughly that amount in profit a month.