After weeks of speculation, Apple will reportedly make good on its rumored acquisition of Beats Electronics, with a formal announcement expected this week. However, while Beats co-founders Dr. Dre and Jimmy Iovine still stand to make a hefty profit from the sale, Apple has tightened its belt a bit after performing due diligence of the company, dropping its original rumored offer of $3.2 billion to an even $3 billion, according to the New York Post.
Even after shaving off $200 million, the acquisition would still rank as the largest in the Cupertino tech giant’s history. The deal was thought to be slated for announcement by Apple weeks ago, but the company has remained mum so far, refraining from any comment. If successful, the acquisition will roll in all of Beats Electronics’ services, including a host of headphone models, portable speakers like the Beats Pill and other audio gear, as well as the company’s somewhat struggling new Spotify competitor, Beats Music.
Details continue to roll in, but according to the Post, the drop in price may be due to a leaked report containing details about Beats Music’s subscriber base, which pegged the number at around 111,000. In comparison to Spotify’s flaunted 10 million paid subscribers, the number puts the fledgling music service in a weakened position, which may have given Apple some leverage at the negotiating table. With $200 million back in the coffers, Apple could essentially write off any losses Beats Music losses in the short term.
Even with its music service floundering, acquiring Beats would fill a lot of holes for Apple, not the least of which would be a replacement for its critically maligned EarPods. If approved, Apple would suddenly have its pick of a myriad of flashy cans to package with the iPhone, which has seen a major dip in growth over the last few years. Music streamers may not be dropping their Spotify subscriptions to run to the Beats Music band wagon, but Beats headphones are still flying off the shelves. And with streaming services struggling to reach profitability en masse, Apple knows that’s where the money is.
In a pre-WhatsApp world, this kind of deal may have had more shock factor. Once Facebook threw down $19 billion for an app, finances between tech firms all became a little more hazy. Still, even after cutting some of the fat, the $3 billion price tag is a hefty price to pay to take control over Dr. Dre’s baby, which had a reported value of around $1 billion in September of last year, according to the Times.
Then again, you can’t put a price tag on hip. And along with some audio prowess, that’s really what Apple is buying here. Turn on the TV and wait a while and you’ll likely see an athlete, TV character, or movie star wearing a pair of Beats headphones. If Apple is successful in its efforts, before long, all of those flashy young stars will be sporting Apple gear. That alone may be worth the price of admission.
A separate report dropped by the New York Post revealed that another big piece of the Beats puzzle for Apple seems to be the addition of the musically gifted mind of Beats co-founder, Jimmy Iovine. A huge portion of the success of Beats can be attributed to Iovine, who, when he’s not cultivating his exploding headphone brand, also moonlights as chairman of a few music labels under Universal Music Group, including Interscope, Geffen, and A&M records. Iovine’s resume is littered with a star-studded cast of huge artists, most recently including Eminem (who partnered with Dr. Dre when he first emerged if you’ll recall), and Lady Gaga, as well as a few other familiar names like Bruce Springsteen, John Lennon, Tom Petty, Dire Straits, and U2.
If the rumors are true, Iovine would leave Universal Music Group when his contract expires at the end of 2014 to join Apple as a “special advisor” to CEO Tim Cook. A stalwart industry insider and hit maker, Iovine would bring a wealth of invaluable knowledge to the table, as well as a spark of creativity and innovation – something that Apple has been short on lately when it comes to the music business. The company that pioneered the modern MP3 paradigm with iTunes has seen its grip on the market slipping in recent years as streaming services like Spotify, Pandora, and Beats’ own Beats Music have grabbed a nice slice of the market share, helping to deepen the decline of music downloads. It appears Apple’s strategy with Beats reaches much deeper than headphones.
We’re still seeing details come in, so stay with us to follow the story as it unfolds. What do you think? Are you a Beats fan, or part of the Apple faithful? Will the union have you split between the two? Does Beats Music’s slow start have you staying away from the service? Let us know in the comments.
Dr. Dre YouTube Video
Update on 5-09-2014 by Jeffrey Van Camp: A YouTube video has surfaced showing Dr. Dre and Tyrese celebrating becoming billionaires. We’ve embedded it above. The video is somewhat NSFW.
Update on 5-09-2014 by Ryan Waniata: News that Jimmy Iovine may be coming on staff with Apple as a “special advisor” to Tim Cook has been added to this article
Update on 5-28-2014 by Ryan Waniata: Apple will reportedly make a formal announcement of the acquisition this week, with a price lower than originally estimated, totalling $3 billion.
Article originally published 5-08-2014.
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