A year later, Apple-Beats deal remains a mystery

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Apple's Eddy Cue and Beats co-founder Jimmy Iovine sit in Walt Mossberg's famous red chairs to dish on Apple's Beats acquisition.
Apple's Eddy Cue and Beats co-founder Jimmy Iovine discuss the Beats acquisition shortly after the announcement last year.
Photo: Pete Mall/Re/code

The rumor mill continues to churn about what the hell Apple is going to do with Beats Music. It’s been a year since Apple paid $3 billion to acquire the upstart music service and headphone maker, but we are no closer to understanding why Cupertino laid out the cash.

When Apple purchased Beats Music and Beats Electronics, it did so with a splash it generally reserves for the unveiling of a game-changing product like the Apple Watch. Since then, it’s basically been crickets.

It is clear Apple has a way to go to compete in the streaming music game against Spotify, Pandora and the other services scrambling to get a piece of the music industry pie. But what form will Apple’s next music play take?

Apple wants to get paid

One thing’s for sure: The mashup of iTunes and Beats will not be about chasing people who just want free music, as Apple is definitely a for-profit organization.

Apple is expected to announce a revamped iTunes at next month’s Worldwide Developers Conference that could incorporate Beats-powered streaming music into the mix.

What did Apple get for $3 billion? A highly successful headphones company; a new door to the streaming business with street cred; and co-founder Jimmy Iovine, who brought great value to Apple this year when he reportedly helped secure HBO’s streaming service for Apple TV.

With iTunes sales dropping steadily and the streaming music business generating $1.9 billion in the United States in 2014, it’s not hard to figure out why Apple wants a slice of the pie — and also why they are taking their time trying to get it right. It’s not unlike the long wait for the Apple Watch: it appears the mothership is dialing in its music plan carefully before telling the world what to expect from iTunes and Beats going forward.

What’s in a name?

Some say Apple will drop the Beats name, but then it would lose the street cred most pundits think they were after in the first place.

“It’s an unusual situation to have two brands under one umbrella,” analyst Horace Dediu of Asymco told Cult of Mac. Apple has been very careful with the Beats name. They are not even saying ‘Beats by Apple.'”

Cupertino typically acquires small, little-known companies with talent or technology that can translate into new features for Apple’s core products. But the Beats deal was clearly different, adding an existing line of successful headphones into Apple’s product line and bringing music industry stars like Beats co-founders Jimmy Iovine and Dr. Dre into the Apple family.

“Perhaps it’s a new era,” Dediu said. “The hardware is worth something, the brand is worth something, the streaming is worth something and the team is definitely worth something. It’s the sum of its parts. I don’t think there is any one reason to buy it, but when you add it all up, it’s a good package.”

One music executive said Apple's new streaming service will be like "Spotify with Jimmy Juice," referring to the influence of Beats co-founder Jimmy Iovine.
One music industry player said Apple’s new streaming service will be like “Spotify with Jimmy Juice.”
Photo: David Pierini/Cult of Mac

One service to rule them all?

It will be no surprise to Apple fans if the company becomes the biggest player in streaming music. Apple proved its ability to turn the music industry on its head with the original iTunes. In fact, it was Iovine, a friend of the late Steve Jobs, who helped convince executives in the recording industry to make music available for purchase one track at a time back in the day.

However, Forrester Research media technology analyst James McQuivey told Cult of Mac that Apple might not make deep inroads into streaming. In digital media, he said, “one player usually takes most,” like Facebook or YouTube. He does not see a new streaming service by Apple slowing Spotify’s growth.

Still, it’s not generally wise to bet against Apple. Nine Inch Nails frontman Trent Reznor is retooling Apple’s new service and Iovine is reportedly pursuing exclusive album releases to hook listeners. One unnamed music executive told The New York Times that the new iTunes is “Spotify with Jimmy Juice.”

Having a team led by Iovine suggesting cool music to people just might be the equivalent of trusting Apple’s design guru, Jony Ive, on the best shape and color for our watches, iPhones and MacBooks.

Dediu thinks Apple is simply trying to capture a share of the growth in streaming and is not necessarily out to knock off Spotify or Pandora. While iTunes Radio has made little inroads in streaming, Beats brings its technology, audience and curation. Apple will likely compete not with algorithms but with playlists picked by artists, Dediu said. He said streaming services are like television channels — a consumer doesn’t use just one.

Beats headphones
One analyst thinks Beats heads allows Apple to bring its technology to the head, like using voice activation to command the watch or phone.
Photo: Beats

Hooked on headphones

While Forrester’s McQuivey said the Beats team and its music biz ties can help Apple make a play in streaming, he believes the true value of the Apple-Beats deal remains in the headphones and what could potentially be developed.

The headphone industry generated revenues of $8.4 billion in 2014, with steady growth predicted through at least 2018, according to a report by Futuresource Consulting. Beats controls more than 50 percent of the market on headphones costing more than $99, according to marketing research firm NPD Group.

“Apple can put a hardware platform on peoples’ heads without having to build one themselves,” McQuivey said. “I could be wrong, but I believe it will be more than headphones.”

While we anxiously await any shred of actual news as to what Apple has planned for iTunes and Beats, it is clear Apple needs to do something pretty special to recapture the glory of iTunes golden years.

“Music has always held a special place in our hearts, and we’re thrilled to join forces with a group of people who love it as much as we do,” Apple said as it welcomed Beats into the family. “Jimmy Iovine and Dr. Dre have created beautiful products that have helped millions of people deepen their connection to music. We’re delighted to be working with the team to elevate that experience even further. And we can’t wait to hear what’s next.”

Neither can we.