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Apple Bets Big on Music with $3B Beats Buy
Apple Bets Big on Music with $3B Beats Buy

By Jennifer LeClaire
May 29, 2014 10:22AM

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Beats Music is cross-platform, which opens up an opportunity market to Android users. On the Beats Music front, Apple has a cool technology brand but Beats has a hipper music brand. Above all, it could be the team and its deep roots in the music industry that hold the most value for Apple in the long-term, said analyst Ross Rubin.

As rumored, Apple has acquired subscription service Beats Music and Beats Electronics -- maker of the Beats headphones, speakers and audio software -- for a whopping $3 billion.

Beats hit the market five years ago and has become a massive cultural hit. With the cache of its iconic co-founders, Dr. Dre and Jimmy Iovine, Beats has attracted the likes of Lady Gaga, Lil Wayne and Nicki Minaj to design their own customized Beats headphones and speakers. And Beats Music was developed by a team of people who have spent their careers in music, resulting in curated content that athletes like LeBron James, Serena Williams and Neymar say is a critical part of their training and game-day processes.

“Music is such an important part of all of our lives and holds a special place within our hearts at Apple,” said Tim Cook, Apple’s CEO. “That’s why we have kept investing in music and are bringing together these extraordinary teams so we can continue to create the most innovative music products and services in the world.”

The Brains Behind the Billions

Apple isn’t just getting technology and hardware in the blockbuster deal, the company is also adding Beats co-founders Jimmy Iovine and Dr. Dre to its roster of talent.

Iovine, chairman of Interscope Geffen A&M Records, has been at the forefront of innovation in the music industry for decades. But many don’t know he’s also been a key partner for Apple and iTunes for more than 10 years.

Indeed, Iovine has produced or collaborated with some of the most successful artists in the history of the iTunes Store. Iovine and Dr. Dre, who started his career as a rapper, are sound pioneers, artists and entrepreneurs.

“I’ve always known in my heart that Beats belonged with Apple,” said Jimmy Iovine. “The idea when we started the company was inspired by Apple’s unmatched ability to marry culture and technology. Apple’s deep commitment to music fans, artists, songwriters and the music industry is something special.”

The Real Reason for the Acquisition

We caught up with Ross Rubin, a principal analyst at Reticle Research, to get his take on the buy. He told us Beats is active in product categories that Apple is not, which makes the acquisition complementary.

“Of course, there was a wide range of companies that are competing with Beats in the premium headphone and portable Bluetooth speaker space. It’s a very crowded field,” Rubin said. “That’s clearly an area where Apple’s hardware engineering can work to improve the products and better integrate them with its portable products like iPhones and MacBooks.”

Rubin said Beats Music is cross-platform, which opens up an opportunity market to Android users. On the Beats Music front, he noted Apple has a cool technology brand but Beats has a hipper music brand. Above all, it could be the team and its deep roots in the music industry that hold the most value for Apple in the long-term.

“Even though there’s some value there, Apple could have built its own music service and its own headphones or acquired them from a less expensive company,” Rubin said. “They could have come up with their own audio sub-brand or licensed one. Tim Cook has said that it will become more apparent in the future why they acquired Beats. So we’ll see.”

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