Apple strikes a new chord in the future of music with Beats acquisition

“The iPod and iPhone maker is expected to announce as early as this week a $3.2 billion agreement to buy Beats Electronics, the music streaming service and headphone maker founded by legendary music producer Jimmy Iovine and rapper Dr Dre, according to three sources familiar with Apple’s thinking,” Christina Farr, Ronald Grover and Lisa Richwine report for Reuters. “The deal would come after Pandora Media Inc and Spotify have already claimed the vanguard of the music streaming revolution, while Apple’s riposte – the eight-month-old iTunes Radio – is stumbling.”

“‘Apple is about two years late, behind Spotify,’ said David Pakman, a digital music investor with Venrock Capital and a co-creator of Apple’s Music Group. ‘They need a streaming offering,'” Farr, Grover and Richwine report. “With digital music downloads in decline, record labels have put pressure on Apple to get its act together on streaming, according to two of the three sources. The record labels hope Apple can turn Beats Music into a strong competitor with Spotify and other streaming services, the sources said.”

“In recent months, the major labels had grown dissatisfied with the performance of iTunes Radio, the source said. Streaming subscriptions are now the fastest-growing revenue source for the music industry, but Apple has not made a dent,” Farr, Grover and Richwine report. “‘ITunes is the number one for digital downloads,’ said Daniel Weisman, a manager at Roc Nation who represents bands. ‘If iTunes can flip the switch on their user base to become streaming subscribers, that will be a huge win for everyone.’ A source at a music publisher said the labels like Beats because it was ‘created from within the music industry.’ Getting Iovine on board will give Apple huge leverage across the negotiating table as streaming develops.”

Read more in the full article here.

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  1. Hmmmm, starting to make sense. Beats headphones are very popular with teens and so forth. They sound crap (I’m a studio geek) but it take little to make them sound great, a mere trifle of effort for Apple.

    Even with all the other streaming, contacts and all that, 3.2B seems a bit high.

    Both Iovine and Dre met with Jobs many times over the iPod and iTunes project and Iovine became close friends with Jobs. Both have history with Apple so it’s actually a good fit culturally.

    Isn’t this interesting kiddies !

  2. Streaming music is still in its infancy. It’s about 6% of the total music sales. Whether it ever takes over the market is yet to be seen. IMHO the drop in overall music sales is probably just as much due to the drop in quality music being published. How many years can the record companies put out the same sound ad nauseum? There are always a few great new acts and albums put out by established stars, but overall, the last 15 years of music has been a never ending cycle of despair. Record companies and radio stations controlling the music scene by taking no chances and putting out the same crap year after year. Yes, streaming is rising. There’s always going to be a segment of the market that doesn’t care if they own the songs. Those are the same people who get all their music from the radio stations, who nearly all play the same narrow playlists. To put the streaming music volume in perspective, the quantity of songs being consumed in that media are only about 2.5x the number of songs being sold on vinyl. It’s popularity will grow for sure, but it’s not like it’s going to supplant ownership of the music. Apple’s iTunes market share is still actually growing while the overall industry sales have come down some. Not sure what Beats will get Apple, but I understand why they would continue to pursue streaming music. Eventually the sales volume and ad revenue would be significant. I do hope there’s more to it than what I can envision right now. Not that I’m any kind of visionary.

    1. There’s great music out there, but neither Beats, nor iTunes Radio, nor Pandora, nor Spotify, ad nauseum, will let you find it. There is a small hope that terrestrial radio might continue, especially in the college arena, to bring what’s new and different and non-commercial, to one’s ears, but that hope is dying. This might all explain how live music is having a resurgence- that’s where you can hear something with a bit of intelligence and some clue that it’s the music that’s important, not the personality or the amount of skin being shown.

    2. I agree with you 100%. This predicament seems almost too similar to the music industry pre-iTunes when Napster was all too popular.. Yes music streaming is a new focus point and possibly the next big thing. My only input is the Lovine has an audiophile like mentality that could help to mold the music streaming market. It will be an interesting play out no matter what the outcome

  3. I’m wondering how the Beats music service can make iTunes more lightweight. How can they strip down iTunes, or break it into pieces.

    Remember… Apple can’t break iTunes completely because it is used on the Windows side for App management…Hmmm…

    What if there were NO iTunes for Windows? What if Apple just asked people to manage their iDevices without iTunes (wifi, etc as is possible already)? Could they butcher iTunes?

    1. you have a good point…

      iTunes is bloated – an application once used to organize, rip and burn music. Then, it became a store for music purchases, movie download and rentals. After that, it became a place for iOS app purchases too… iTunes manages far too much in my opinion.
      Apple has always had a fantastic Internet Radio Pod cast service.
      Apple may have never RENT music, as it did with Movies, perhaps due to the record dealers regarding DRM. But later frees the MP3 movement in hopes that piracy of music is stopped with the idea of purchasing. And perhaps that is why Apple Subscription Radio never really occurred.

      Apple is not behind the curve, it is studying how to BETTER the over all experience. I am hopeful Apple does come up with a great solution for subscription Music – yet it has to be revolutionary – and go beyond what the others have done.

      I remember typing about this before, when the App Store appeared on the Mac Desktop. Streamline the differences. O

      An AppStore for purchasing OSX and iOS softwares.
      A ContentStore for iBooks, Music and Movies.
      A RentalStore for anything… renting APPS (even trial software), MUSIC (that vaporize after week) or Radio subscriptions, MOVIES and TV shows.

      And separate

      One Apple Account BUT several stores.

      1. WRT The App Store for iOS + OS X, they can do that for Podcasts too, and reduce iTunes to MUSIC ONLY.

        Just one problem: Windows users. How will Windows users organize their iOS Apps. Apple could effectively drop iTunes support for WIndows, and tell them to organize their iOS apps, etc directly on the device. Its my understanding that many already use their iDevices this way, so it’s not too much to ask.

  4. Apple makes the best hardware and software. Apple doesn’t do services nearly as well. And that has been true for a long time. iTunes has never been what you would expect from Apple. iTunes radio is even worse. Their services need help. And it’s not always bad when you seek help from the outside. Hiring insiders with lots of experience and clout in the music and entertainment industry is not a bad thing. Apple hires the best engineers and brightest minds as well as the most innovative companies that they can find. Hiring people inside “the business” is something they should have done long, long ago. But at least they are finally doing the right thing. It’s about connections and style not about the headphones. And let’s face it, there are some pretty sharp people in Cupertino. Sharp enough to finally realize that they are making no headway with music, movies etc. I’m glad to see this happen. Hopefully it will work out well. I think it will turn out great. But even if it is a total failure, it isn’t really that much money for Apple. And they don’t make many bad acquisitions. If any. Just think about the stylish people that have been hired by Apple in the last year or so. Apple is separating itself from the rest of the pack. Not that they weren’t always leading anyway. But within the next six months to a year Apple is going to be even cooler than in the past. Apple will be in the Mercedes and everyone else will be in a Yugo. I believe that the combination of all these hires will come to fruition in all of their products including a few new ones. Apple will be stylin!

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