“Apple Inc. potentially dropping $3.2 billion for the high-end headphone maker Beats Electronics LLC has perplexed Wall Street analysts,” Steven Russolillo reports for The Wall Street Journal.
“Such a flashy move–Beats is founded by music industry veteran Jimmy Iovine and hip-hop producer and artist. Dr. Dre–would mark a departure from Apple’s traditionally conservative stance in the M&A market,” Russolillo reports. “‘We struggle with the rationale for this deal on several fronts,’ Toni Sacconaghi, senior analyst at Sanford C. Bernstein & Co., wrote to clients. ‘While Beats headphones are undoubtedly very profitable on a gross margin basis, it is unclear whether the audio equipment and streaming technology relationships are privileged or hard to replicate.'”
“Mr. Sacconaghi of Sanford Bernstein wonders if Apple’s interest in Beats is reflective of the company struggling with iTunes. A recent Apple filing showed the company witnessed a year-over-year drop in digital music sales, he noted. And Apple hasn’t mentioned iTunes Radio on its previous two quarterly conference calls with analysts. Meanwhile, Pandora Media Inc recently said it was only seeing a ‘modest’ impact from iTunes Radio,” Russolillo reports. “To be sure, Mr. Sacconaghi notes an Apple deal for Beats isn’t exactly financially significant. A $3.2 billion price tag is roughly the equivalent of about 2% of Apple’s $151 billion in cash and cash equivalents. And as perplexing as an Apple/Beats deal may be, he notes it isn’t likely to change much about the company’s bottom line.”
Read more in the full article here.
MacDailyNews Take: It’s very likely that this Beats deal is simply that Jimmy Iovine is like Steve Jobs in one way, at least, in that he has the ability to sell ice to Eskimos, and Cook realizes that Eddy Cue without Steve Jobs is failing to seal the types of deals that Apple needs sealed.
iTunes Radio isn’t as good as it should be (plus it’s unnecessarily hidden within iTunes on the desktop, especially), a subscription option would certainly be welcome, and the work for Apple’s next-gen TV product is pretty much done, according to our sources, but lacks the necessary content deals for launch. As senior vice president of Internet Software and Services, Cue is responsible for these things. Perhaps Cook’s intention is that those types of initiatives will now fall to Iovine to make happen correctly and promptly.
We’re not going to say that we expect Cue to retire sooner than later, but we wouldn’t be the least bit surprised if he did, especially if this Beats deal gets consummated.
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