Apple paying under $500 million for Beats Music streaming service

“Apple Inc. is paying slightly less than $500 million for the Beats Music streaming service, and more than $2.5 billion for Beats Electronics in its $3 billion deal, according to people familiar with the matter,” Hannah Karp, Ryan Dezember and Alistair Barr report for The Wall Street Journal. “The breakdown between the two portions of Beats Electronics LLC offers insight into Apple’s thinking for the most expensive acquisition in its history.”

“A person familiar with Beats said its 2013 sales totaled close to $1.3 billion—all from the electronics unit that sells headphones and other audio gear—and the company was profitable,” Karp, Dezember and Barr report. “Beats launched its streaming-music service in January.”

“The people familiar with the matter cautioned that the breakdown of the purchase price was largely an accounting issue, because the two Beats units are backed by different investors,” Karp, Dezember and Barr report. “Apple Chief Executive Tim Cook said in an interview Wednesday that growing Beats’ existing businesses was ‘not the reason for doing the deal.'”

“Instead, he said, the deal was about recruiting the right people for Apple, which revolutionized music consumption with the iPod and its iTunes digital-music store but has risked falling behind in newer businesses such as streaming,” Karp, Dezember and Barr report. “Apple never contacted Spotify during the process of acquiring Beats, according to two people familiar with the matter, suggesting that Apple was more interested in Beats for its brand power and star leadership than in acquiring a generic streaming service.”

Read more in the full article here.

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5 Comments

  1. This gets really interesting if you consider they just wanted the 2 guys + the music service. If they soon off the headphones in a year, this deal will start to look a lot smaller.

    Still, it’s Apple. $3B is not that big of a risk. The really interesting thing to watch is how long it takes Iovine to replace Eddie Cue. None of this would be happening if Eddy Cues team was able to make iTunes and iTunes services great. FFS the man has Ping on his résumé , does he not ?

    1. To be fair each man has very different skills it just seems that Cue tried and failed to take over the role of Steve Jobs as it related to him. So i wouldn’t presume he will be replaced but more likely go back to what he is (supposedly) good at and no doubt Cook will re assess the game in around a year.

  2. If Apple is paying that much for the headset electronics hardware, I look for an acquisition of a stereo receiver manufacturer. But how would they get around the old “no compete” agreement with the original and legendary “McIntosh” Audio folks? That’s still a company that makes great hardware, though the products are badly in need of modernization for the HDTV world.

    1. I don’t think you can make that leap. Beats has a high-margin product line with well over a billion in annual revenue. That’s what Apple gets from this (in addition to the streaming service and talent).

      There simply isn’t a stereo manufacturer who can offer the same thing (a high margin, high volume business).And if Apple designed and sold a surround-sound amp of some kind (or a television, for that matter), they would not have much trouble capturing that business under their own brand.

      For better or worse, for the mass market the perceived value in a audio system resides in the “source” and not in the rest of the system. I’d guess that Apple has a better claim to the living room audio market than any audio company.

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