“Apple buying Beats was likely a home-run success from a financial perspective,” Andrew Tonner writes for The Motley Fool. “Because while the $3 billion price tag certainly broke Apple’s long-standing bias against sizable acquisitions, Beats is also likely a profit powerhouse very much in the same vein as Apple.”
“Apple acquired Beats as a private company, so it never regularly produced financial reports to give us a definitive sense of its financial performance. However, a steady stream of reported internal leaks suggest the company generated massive profits on each unit of hardware it sold,” Tonner writes. “A report last year from The New York Times claimed that a single set of Beats headphones carried a cost of goods sold of as little as $14, implying its high-end headphones that regularly retail for between $199 and $399 enjoyed incredible gross margins.”
“If Apple bought Beats with the sole intent of making money, it likely achieved its objective. However, as one of the most profitable companies in the world, Apple’s aims in buying Beats almost assuredly lay beyond merely purchasing a fresh profit stream,” Tonner writes. “Another possible strategic rationale for Apple’s Beats buyout was its executive team and the possibility that its seasoned leadership could help break negotiation stalemates for long-rumored services like Apple’s elusive over-the-top TV product. With Apple’s rumored TV service still not even necessarily confirmed by the company, assessing this angle’s success lacks any real veracity. However, reports that former Beats executive and music industry legend Jimmy Iovine was instrumental in helping Apple secure its exclusive debut of HBO Now indicate Iovine is active in a dealmaking or negotiating capacity for Apple. ”
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MacDailyNews Take: Of course getting Jimmy Iovine on board was the impetus for the Beats purchase. The business of selling astonishingly mediocre, massively marked-up headphones to tin-ears was just a bonus.
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How Apple’s Jimmy Iovine helped land HBO Now – April 7, 2015
Did Tim Cook just pay $3 billion for his successor, Jimmy Iovine? – May 29, 2014
Apple CEO Cook: Beats deal a ‘no-brainer’ – May 28, 2014
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