“Apple, the company that turned digital music into a mainstream phenomenon, said on Wednesday that it was buying Beats Electronics, the rising music brand, for $3 billion, in a move that will help it play catch-up with rivals that offer subscription-based music services,” Brian X. Chen reports for The New York Times. “Apple and Beats executives on Wednesday said that the companies would work together to give consumers worldwide more options to listen to music. The Beats brand will remain separate from Apple’s, and Apple will offer both Beats’s streaming music service and premium headphones.”
“Apple said that iTunes, which sells individual songs and albums and offers a streaming radio service, would continue to be offered alongside the Beats music service,” Chen reports. “The purchase of Beats brings Jimmy Iovine, a longtime music executive, and Dr. Dre, the rapper, to work under Eddy Cue, Apple’s executive in charge of Internet services.”
“In an interview here at Apple’s headquarters, Timothy D. Cook, Apple’s chief executive, repeatedly emphasized the talent that Dr. Dre and Mr. Iovine would bring to Apple. He also praised the Beats music service, which has people create playlists for people to listen to. ‘These guys are really unique,’ Mr. Cook said. ‘It’s like finding the precise grain of sand on the beach. They’re rare and very hard to find,'” Chen reports. “Until now, Apple, the richest tech company in the world, has avoided billion-dollar takeovers in favor of smaller deals. The Beats deal is its largest ever.”
Chen reports, “Mr. Cook called the deal a ‘no-brainer.’ He said that Apple had bought 27 companies since last year, but that did not mean Apple had to buy those companies. ‘Could Eddy’s team have built a subscription service? Of course,’ he said. ‘We could’ve built those 27 other things ourselves, too. You don’t build everything yourself. It’s not one thing that excites us here. It’s the people. It’s the service.'”
MacDailyNews Take: Uh, the last thing “Eddy’s team” built was iTunes Radio which is, to be charitable, a work in progress.
Chen reports, “Steven Milunovich, a financial analyst for UBS, said he thought the bulk of the acquisition might have been spent on hiring Mr. Iovine to handle big media negotiations in the future, as Mr. Jobs did for iTunes music in the past. ‘Jobs had a distortion field and that was kind of a unique capability,” Mr. Milunovich said. He added about Mr. Iovine: “Within the music world, this guy’s probably the closest thing you’re going to get to it.'”
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. – MacDailyNews, May 12, 2014
“‘It’s all about music,’ Mr Cook told the FT at an interview in the company’s Cupertino headquarters, adding that Beats co-founders Jimmy Iovine, the music producer, and Dr Dre, the hip-hop legend were ‘kindred spirits.’ Mr Iovine and Dr Dre will join Apple as part of the deal,” Matthew Garrahan and Tim Bradshaw report for The Financial Times. “‘We’ve known them a long time,’ Mr Cook said. ‘We’ve gone from dating to going steady… now we’re getting married.'”
With the acquisition, “‘We’ve got a streaming service that we believe is the first to get it right,’ Mr Cook told the FT. ‘They had the insight that human curation was very important… we think they’ve done an A plus job,'” Garrahan and Bradshaw report. “Beats was superior to rival streaming services, he added. ‘Some of them are no more than a random set of songs put together.'”
“Mr Iovine said Beats Music would be enhanced and improved by the tie-up with Apple. ‘It’s only 20 per cent of what we want it to be. How do we get it to the quality we want? That’s Apple,'” Garrahan and Bradshaw report. “It is the most significant platform transformation that we have had for 30 years, said Lucian Grainge, chairman and chief executive of Universal Music Group, the world’s largest music company. Subscription streaming generates ‘high quality, recurring income,’ he added. Will.i.am, the recording artist and entrepreneur, told the FT the deal was ‘transformational… it redefines our industry.’ … Said Doug Morris, chairman and chief executive of Sony Music. ‘This deal is a great thing for the record industry and it will turn out to be amazing for Apple.'”
Read more in the full article here.
Related articles:
Tim Cook’s internal memo to Apple employees regarding Beats acquisition – May 28, 2014
It’s official: Apple acquires Beats Music and Beats Electronics for $3 billion – May 28, 2014
Apple reportedly cuts $200 million off Beats purchase price – May 28, 2014
Why the Apple-Beats deal may be dead – May 27, 2014
Has Dr. Dre’s drunken boast cost his company $3.2 billion? – May 24, 2014
Apple might buy Beats Electronics with foreign cash, effectively paying much less than $3.2 billion – May 23, 2014
70% chance Apple’s Beats deal is happening and, if so, it’s a Dr. Dre, Jimmy Iovine acquihire, says source – May 22, 2014
As MacDailyNews already posited, Walter Isaacson thinks maybe Jimmy Iovine will run Apple’s content business – May 20, 2014
Apple strikes a new chord in the future of music with Beats acquisition – May 18, 2014
How Tim Cook buying Beats is like Steve Jobs buying SoundJam – May 18, 2014
Apple’s $3.2 billion Beats acquisition may not be finalized until next week – May 15, 2014
Monster CEO sounds a little bitter over Apple’s planned $3.2 billion Beats acquisition – May 14, 2014
Ben Thompson on possible Beats buy: Is Apple losing what makes Apple, Apple? – May 13, 2014
Nolan Bushnell: Beats is a ‘good deal for Apple,’ but it says Apple is ‘not an innovative tech company’ – May 13, 2014
Curated music influencing Apple’s jump into streaming – May 13, 2014
Beats Music is actually so good that I’m worried about Apple ruining it – May 13, 2014
Apple could become most powerful record label in the world with Dr Dre, Jimmy Iovine onboard – May 13, 2014
Bob Lefsetz on Apple-Beats deal: Tim Cook is an operations guy, he’s clueless, and the company has no vision</a – May 13, 2014
Apple CEO Tim Cook makes break from managerial style of Steve Jobs – May 12, 2014
Analyst Sacconaghi on Apple buying Beats: ‘We struggle with the rationale for this deal’ – May 12, 2014
Cody Willard: Apple’s Beats buy is just stupid
– May 12, 2014
Apple may unveil Jimmy Iovine, Dr. Dre executive appointments at WWDC – May 12, 2014
Apple CEO Tim Cook’s pursuit of Beats seen presaging more takeovers – May 12, 2014
Former eMusic CEO explains why Apple wants to buy Beats – May 12, 2014
Apple’s deep ties with Jimmy Iovine key driver of Beats deal – May 12, 2014
Removal of Dr. Dre video about Apple-Beats deal likely means acquisition is real and imminent – May 10, 2014
Dr. Dre boasts of Apple-Beats deal in YouTube video, on Facebook – May 9, 2014
Game changer: Apple buying Beats could radically transform the digital music business – May 9, 2014
If Beats deal happens, Apple is acquiring a fad, not quality, and that is troubling – May 9, 2014
If Apple’s really buying Beats, here’s hoping it’s brilliant in a way which isn’t immediately obvious – May 9, 2014
The reason for Apple’s $3.2 billion interest in Beats? Spotify – May 9, 2014
Apple buying Beats Electronics: Its best idea since the iPad? – May 9, 2014
Why would Apple want to blow $3.2 billion on Beats Electronics? – May 8, 2014
Apple in talks to buy Beats Electronics for $3.2 billion – May 8, 2014
As in, “I didn’t use my brain.”
Just kidding. If Iovine can finally get the deals done that are necessary for Apple iTV, then Ineffective Eddy can GTFO of Apple and go play with his Ferraris full-time.
you took my line.
Did Apple not remember why htc sold beats only a few years after buying them?
HTC didn’t buy Beats. They bought a stake in the company and integrated Beats into their phones.
They also sold their stake for a gain.
Apple bought Beats outright. They can call the shots.
Apple will be defending this purchase for some time. When was the last time APple had to defend a purchase?
Apple doesn’t have to defend anything… When was the last Apple did anything and wasn’t scrutinized by most of the blogosphere? This is par for the course. And a year from now, no one will remember all the caterwauling.
“caterwauling”. Nice. A word not used to it’s full potential on the inter webs. Thanks!
Look Up “caterwauling”
A feature not used to it’s full potential 😉
Thanks for the word of the day.
As a publicly traded company, yes they will have to defend this action. More so, considering the close proximity when this story broke so close to the WWDC.
In a dry year where Apple promised new products and has nothing to show for it. All this on top of the bad marketing of the iPhone 5c and expensive and very hard to get new Mac pro.
It all adds up and takes its toll.
Finally, someone gets it!
And yet the company continues making more money than ever before, no thanks to you. Whiners like you should stay away from Apple. You are bad karma.
They do have to up their game in most aspects of their business from marketing to production to be honest, though yes those who want to find fault will always do so sadly, and without any reference to reality or fact. We just need to sieve out the dross from those with real insight.
Exactly, with the obscene profits these beats headphone make, the pressure is off Apple to produce a product that generates enormous sales.
/s
there, fixed
MDN Take: “in that he has the ability to sell ice to Eskimos” – but can he also sell them a freezer to keep the ice in?
that sales pitch is in the future pipeline, when it is needed
first we get them addicted to ice, then when all the natural ice is gone, they need the freezer
brilliant !-)
So you have a music service and you are “curating” a hundred thousand users music with people, what happens when you have 15 million, 50 million, a hundred million people subscribed?
Don’t Panic!
Throw him a towel.
With the headphones paying off the acquisition in two to three years, they get a music streaming service for free. It sounds like a no-brainer to me.
Apple is but a sum of it’s parts, Beats is but a tiny part of Apple, that has value and adds value to other parts.
Now will all the Mobday morning quarterbacks and arm chair CEOs STFU ALREADY?!
I can’t tell if Mobday was an intentional slip-up or not, but either way, I like it 🙂
Very rough back of the napkin calculations:
– Apple has around 800 million credit cards
– 50 million could sign up pay $8 a month to stream all music
– that’s $4.8B a year in revenue
– say after tax profit is $1.5B
– at 820M share float that’s an EPS of $1.83
– headphones and equipment revenue is $1.2B (possibly even more with new products in the pipeline)
– After tax profit of equipment is $700M or an EPS of $.85 a share
– total potential increase in EPS from this acquisition in 2015 is $2.68 a share
– Apple could potentially grow EPS with the Beats acquisition (from 2013 EPS $40 a share) by 6.5%
– if they bundle the music service for free for six months or any other incentives with the purchase of new iOS products then there could be additional sales of iOS products and EPS growth
– then there is the Android angle. If this is a foot in the door for iTunes the financial implications could be even greater.
So, back of the napkin says this deal is worth 4% – 10% in EPS growth for 2015. Seems like a good investment to me.
50m subs – when Spotify has only 10m – I think you jest.
I ‘m sure there are more than 50m users of Spotify – like a great many kids – because of its free service. Like TV series downloading, they accept the less than stellar download quailty, because its free. Turning that into subscriptions is a completely different proposition and THE $3bn question is can Apple really do that.
I don’t have Apple’s game plan in from of me, but let’s say they sell 300 milliion iOS devices in 2015. With every new iOS device comes a three to six month free subscription to Beats. So, 75% sign-up and start making and sharing playlists and discovering new music. The trial period ends and $8 a month is charged to their credit cards. How many will discontinue the service? 75% of the 75%? If so, then there is 56 million happy paying customers.
On a retracted market? Got to be very optimistic. Maybe these maths are same of Cook’s family. Until now, only those Dre and Iovine dudes have made the grade. Civilization based on media standards. US$ 3 billions? Apple? Beats??? It’s not just money but the message you send.
since the media started talking about rumoured Beats purchase until today Apple has made enough cash to pay for it.
(Apple makes about 3 billion bucks in net profit — i.e after expenses — every month. 10.2 billion last quarter. ).
While reporters are yapping Apple has cleared the bill without dipping into it’s cash pile.
Try $13 billion per quarter.
CUPERTINO, California—January 27, 2014—Apple® today announced financial results for its fiscal 2014 first quarter ended December 28, 2013. The Company posted record quarterly revenue of $57.6 billion and quarterly net profit of $13.1 billion, or $14.50 per diluted share. These results compare to revenue of $54.5 billion and net profit of $13.1 billion, or $13.81 per diluted share, in the year-ago quarter. Gross margin was 37.9 percent compared to 38.6 percent in the year-ago quarter. International sales accounted for 63 percent of the quarter’s revenue.
https://www.apple.com/au/pr/library/2014/01/27Apple-Reports-First-Quarter-Results.html
you are right but that’s christmas sales.
last quarter:
“MARKHAM, Ontario—April 23, 2014—Apple today announced financial results for its fiscal 2014 second quarter ended March 29, 2014. The Company posted quarterly revenue of $45.6 billion and quarterly net profit of $10.2 billion, “
Ha ha, very good getting things in perspective.
I am hearing.
1. If Apple needed streaming audio they could have done it years ago. They didn’t do it because they didn’t need it.
2. Apple needs Beats to play catch up on streaming audio – as if they needed it.
3. Beats is the worst purchase they ever made.
4. Beats was a no brainer, best purchase they ever made.
5. We’ve got the best lineup of new products in the pipe line in 25 years.
Look, some of these statements are attributed to Apple’s Eddie, and Tim, and some are from back seat drivers. My concern is that Tim and Eddie will get used to “saying” anything people want to hear, and then… wait… I would rather not hear about what’s coming. I would rather hear, we are working on new things, don’t know when they will be ready, but we will let you know when they are. In the mean time, here’s this years phone, iPod, iPad, Mac. I don’t want to look at Apple execs and come to the conclusion that they are untrustworthy.
So for one, I try NOT to listen to back seat drivers, and I try to understand what Apple is saying, and think maybe if they aren’t harassed, they won’t try to “calm” the masses with less than upfront statements. i don’t want promises other than the technology they deliver is the best anyone could offer. (a simple promise)
Peter and the Wolf come to mind.
In the mean time. I have never paid for streaming music subscriptions. However with Apple, iTunes Radio, Music Match, and now possibly streaming services, I may just pull the trigger. Nothing left to buy, in music.
Oh and Pandora is dead to me. They are ruining the music industry, not that the music publishers haven’t done their best in that category, but fractions of pennies on the dollar, is not fair to the artists. 10 million played tracks is worth more than $100. I even concede to that.
There is a really big deal here. Apple has gone out and bought another Brand label for some serious change.
When has Apple ever owned another major Brand trading under its own name? I can’t think of one.
Apple has always developed and sold Apple products ( excluding those through iTunes and the like where they are making ‘service charges’)
The Problems Have Started Already
I just found this article over at Ars Technica. I am not pleased:
Beats co-founder badmouths Spotify, EarPods in first post-Apple interview
Beats’ Jimmy Iovine: Apple’s EarPods are made to “see if the sound works.”
My comment at Ars Technica:
“He spent some time criticizing his new employer’s default headphones as well, saying that Apple’s EarPods were headphones that you should use “to see if the sound works.””
This comment is worthless. I have on a pair right now and can easily point out that they’ve better than anything Apple previously provided and better than anything similar from Sony. I can also point out that stupid comments like this from someone who is now working within Apple are entirely unacceptable as well as self-destructive of the company and their personal reputation. I’d go so far as to call Iovine asinine for making the comment.
This bodes poorly for the ‘marriage’ of Apple and Beats. We already know the immaturity and obscenity of Dr. Dre. It’s deeply disappointing to hear similarly unprofessional and irresponsible garbage from Iovine.
$3 billion for this. I suspect an annulment is in order.
Congrats Mr Cook, you now have an app in the Google Play store.
https://play.google.com/store/apps/details?id=com.beatsmusic.android.client
What every Apple customer or shareholder wants: a crappy app on a crappy platform.
Cook’s purchase shows that his team is clueless as to the way forward.
What every shareholder should want. A way for Apple to continue to make money in music. If there was a reason that Apple didn’t have a streaming service it was because Steve though it was shit. I think Cook gets a pass this time. Up until a week ago hardly anyone knew that Beats had a music service. Now they have had lots of money in free advertising. But that’s just Apple as always.
Eddy cue never felt like he was a jobs quality hire. Maybe as a techie but not as a powerhouse of content technology.
The Beats deal is its largest ever BUT small one in the recording industry and streaming music service! Therefore, Apple was buying the small one!