Three weeks of speculation and rumors have led to this. Apple is finally buying Beats for $3 billion.
News of the deal broke weeks ago but the tech world is still scratching its head, wondering why Apple decided to buy a company that peddles overpriced plastic headphones and is co-anchored by one of hip-hop’s most notorious MCs.
Forgetting the fact the fact that Beats has captured 60% of its market, makes over $1 billion in sales and has one of the fastest growing music subscription service in the U.S., the acquisition is the most perplexing Apple purchase since NeXT, but now that Tim Cook has broken the silence on why Apple bought Beats we finally answers you wanted to know but were afraid to ask.
So Apple bought Beats for the headphones?
Not really. In an Q&A with Recode, Tim Cook says the purchase is mostly about buying the talented people who turned Beats into one of the world’s top music brands.
“What Beats brings to Apple are guys with very rare skills. People like this aren’t born every day. They’re very rare. They really get music deeply. So we get infusion in Apple of some great talent.
The thing that Beats provides us is a head start. They provide us with incredible people, that don’t grow on trees. They’re creative souls, kindred spirits.”
Apple notably mentions “the critically acclaimed subscription streaming music service Beats Music” first in its press release, with Beats Electronic – the headphone division – being nearly a mere side note. Beats Music is already celebrating the purchase by lowering its annual subscription price to $99.
Does that mean Apple is going to kill the headphone business?
Not so fast. Beats Electronics had over a billion in sales last year alone. That’s a drop in the bucket compared to iPhone, iPad, and even Mac sales, but considering Beats managed to capture 60% of the market in just five years, Tim says there’s definitely some value in those shiny headphones.
“They’ve also built an incredible premium headphone business that’s been tuned by experts and critical ears. We’re fans of that. It’s a reasonable-size business that’s fast-growing.”
Apple’s design team has already taken over on Beats hardware. Ammunition, the design company behind the Beats Studio, the Beats Pro and the Beats Pill, says the transition is already underway after having worked with Jimmy Iovine and Dr. Dre since 2006.
What about the Beats Audio deals with HP and HTC?
Those are getting the axe. According to CNET, Hewlett-Packard will continue to sell computers touting “Beats Audio technology” until the end of 2015, but they only have until the end of 2014 to develop the products. Beats Audio is currently used in 15-20% of the companies products. No word from HTC when it will drop the Beats partnership but it’ll likely happen soon too.
Couldn’t Apple have built its own music subscription service?
Yes, definitely. But Cook says Apple could build pretty much anything in the world it wants, but like the 27 other companies it bought since 2013, Cook told the New York Times it wanted the people.
“Could Eddy’s team have built a subscription service? Of course. 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.”
Why not buy Spotify or Rdio though?
Beats is the first company to get music subscription to get it right in the eyes of Apple. The human element of curation was highly praised by Cook in interviews.
“We believe is the first subscription service that really got it right. They had the insight early on to know how important human curation is. That technology by itself wasn’t enough — that it was the marriage of the two that would really be great, and produce a feeling in people that we want to produce.”
Are Jimmy Iovine and Dr. Dre going to be Apple employees?
Yep. Cook says Jimmy and Dre will be full-time executives. They’ve been commuting to Cupertino on a regular basis and will continue doing that for a long time to come.
But Iovine will continue running the Interscope music empire too, right?
Nope. Iovine is making a clean break from the music industry with Billboard reporting John Janick has been named his successor at Interscope Geffen A&M as the new chairman and CEO after Iovine spent the last 25 years in the role.
What will Jimmy and Dre do at Apple?
Handle content deals and oversee aspects of Beats Music probably. Jimmy and Dre will be working under Eddie Cue who’s in charge of Apple’s of Internet Services. Cue has been Mr. Fixit around Apple and handles negotiations for content, but the addition of Jimmy Iovine gives Apple one of the most influential executives in the history of the industry. He’s the closest thing you can get to the Steve Jobs reality-distortion field in the music industry, maybe he’ll handle video negotiations now too.
But seriously Dr. Dre the rapper will be working at Apple next to Jony Ive?
Yes. Andre Young’s prestige as one of the co-founders of gangsta rap has lots of Apple fanboys wondering how he’ll fit in at 1 Infinite Loop, but Compton’s favorite son hasn’t had to rely on rap to make a living since Drake was in diapers and has turned himself into a media icon.
Like Iovine, Dre holds serious sway in the music industry and beyond. With Dre rocking the space grey iPhone his connections outside the music industry could also help Apple tap into the African-American smartphone market where nearly two-thirds choose Android over iPhone.
Will Apple kill the Windows and Android Beats apps?
The deal is all about the music, according to the Financial Time’s Tim Bradshaw, so the Android and Windows apps will continue to be supported after the acquisition is finalized.
Now that the King of Chronic is in Cupertino will weed be allowed on campus?
No, but apparently investors like ISI Group’s Brian Marshall are concerned that Dre’s rap affiliations will lead to medical marijuana popping up at the Spaceship like orange groves. In a note to investors Marshall claims “there are no plans to house a medical marijuana dispensary in AAPL’s new “spaceship” campus headquarters” despite Dr. Dre’s popular 1992 album being titled “The Chronic.”
The deal isn’t expected to finalize until Q4 2014 though so there’s still time for some addition to Dre’s office.