Apple’s near-final deal with Beats could shift the company’s focus from digital music sales to music streaming services
Apple may be close to making a deal with Dr. Dre, Jimmy Iovine and their music giant, Beats. If the deal goes through, this would be the largest purchase that Apple has ever made. Currently, Apple is in talks to acquire the headphone maker and music service, according to reports. The Santa Monica, CA-based Beats Electronics, LLC was founded by industry executive Jimmy Iovine and artist/producer Dr. Dre. If the deal is made, Beats executives would report directly to Apple CEO Tim Cook.
The negotiations are led by Eddy Cue, Apple’s senior vice president of iTunes and the App Store, according to sources, even though Cue has asked not to be identified in the discussions. Cue has a previous relationship with Iovine through the music industry.
This deal would likely boost Apple’s online music capabilities by providing Apple with all of Beats’ music services. Currently, Beats’ music-streaming services are available to customers for $10 a month. The subscription includes unlimited access to Beats’ entire music catalog, which can be streamed through a computer or mobile device.
There’s been no word on the potential deal from either company, but Dr. Dre has hinted at the deal, saying “The first billionaire in hip-hop, right here.”
Since the release of iTunes and iPod over a decade ago, music has been a huge part of Apple’s business, helping the company expand more than they ever have before. However, Apple has seen a recent hit in digital download sales, since music streaming services, such as Spotify and Pandora, are becoming increasingly popular. Some believe that users will begin to choose streaming over digital downloads, meaning that Apple’s purchase of Beats is justified in Apple’s overall music business strategy.
The $3.2 billion deal would mean that Apple is very serious about establishing their own music streaming service that can compete with others such as Spotify, even if Apple co-founder Steve Jobs wasn’t sold on the idea, insisting that users would prefer to own their music.
This wouldn’t be the first step that Apple has taken in music streaming. Last year, the company introduced iTunes Radio, which is an advertising-based, free streaming service that rivals Spotify and Pandora. The deal with Beats would only further establish their music business and user base, which remains number one for downloads of single tracks and albums.
Despite their strong music business and the expected music deal, Apple shares fell 1.1 percent, as of 11 a.m. Friday.
With the Beats purchase, Apple would also be taking control of their headphones, which were introduced in 2008 as an accessory for the iPod and iPhone listeners on the go. The headphones were supplemented with a focus on marketing for the average user, rather than just hardcore listeners.
As sales of Apple’s mobile devices level off, Apple is under pressure to find something to spark their numbers, which might explain Apple’s interest in advancing their music streaming business. However, some analysts believe that this deal won’t do much to boost Apple’s mobile market. Figures haven’t been released to indicate Beats’ standing in the music streaming business, but it is assumed that the company has claimed a decent market share.
Beats has been known to create partnerships with huge industry names, using a variety of celebrities to market their headphones. Last year, Beats withdrew from borrowing as much as $650 million in loans, which would’ve been used to fund their dividend. Their loan was reduced to $300 million, due to market conditions.
Beats’ relationship with Apple doesn’t start with this deal. In 2003, Dr. Dre was invited by Steve Jobs to preview what would become the iTunes Music Store, which was praised by the artist/producer. Both Iovine and Dr. Dre were huge supporters of Apple’s move into digital music. After that point, music gurus like Dr. Dre and Iovine relied on Jobs and Apple to market their music on the new platform. Now, the tables have turned, as consumers begin to choose digital streaming over digital purchases.
This isn’t the first major deal that Apple would strike either. In the last 18 months, Apple has made 24 purchases. However, Apple’s purchase of Beats would mean that the music company would be working directly with Apple, rather than the tech giant absorbing Beats and its assets into the Apple name.
This deal would also bring up another interesting bit, since HTC, a mobile competitor of Apple, used to own 51 percent of Beats. HTC sold back 25 percent of its stake in 2012. Carlyle Group LP has a minority stake in Beats, and Universal Music Group also owns 14 percent of the music company.