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Streaming Subscription may Boost Apple

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Apple may Reinvent with Music Streaming Subscription

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Apple store China

Anytime soon, Apple Inc. (Nasdaq:AAPL) may announce that it has acquired Beats Electronics founded by Jimmy Iovine and renowned rapper Dr Dre. The two companies are rumoured to have reached a deal and all that is remaining is official proclamation. Beats is a high-end headphone maker and music streaming service provider.  It is obvious that Apple is most interested in its music services!

But why would Apple be interested in another company’s music services when it has its own digital music store and a streaming radio service? There may be a lot beneath the carpet, but primarily the potential of music streaming subscription business may be the primary reason.

Potential of Music Streaming Subscription

According to data from the International Federation of the Phonographic Industry, streaming subscriptions soured 51% in 2013, contributing to $1.1 billion in the gross $15 billion spent on music. In contrast, digital downloads dipped 2.1%.

The data also show that streaming services fetches higher revenues that digital music downloads. An average customer spend $25 – $35 annually on music downloads, while such a subscriber spend at least $9 a month.

And since the labels royalties are merely a fraction of a cent per music streamed, the revenues in streaming subscription per user is higher than per user digital sales.

So why Choose Beats?

Beats electronic is renowned for its hardware, though the potential of its music streaming business cannot be overlooked. In its initial weeks of inception in January, beats’ music streaming service signed up over thousand followers a day.

When Apple acquires beats, it will be taking the ownership of the high-margin headphone business together with a music streaming service that has been developed by music industry insiders. In addition, the company will be bringing in top players in the music industry like the legendary music producer Jimmy Iovine. You may well say that Tim Cook’s company may have nipped its competition in the bud.

Others…

Prevent Over Dependency on iPhone

“Beats by Dre”, as the young Apple’s acquisition is widely known, will cost the iPhone maker up to $3.2 billion. And though Apple has such a huge amount of money on the coffers, it is now depending on its flagship product – the iPhone – more than ever!

Revenues from iPad are slowing down, the impact of stiff competition fromstreaming Subscription is starting to show signs in its music store and iPod is no longer nascent! Only iPhone is doing well with a double digit revenue growth, and now is contributing about 75% of the company’s total revenues.

While iPhone sales growth and dominance is a good thing, depending on a single product line is dangerous. And with the kind of competition the iPhone is subjected to by Android phone makers, there is need for Apple to reinvent its other businesses if its revenue is to keep growing, and music streaming Subscription may be the answer.

Compete with Streaming Subscription early adopters

Apple’s music business (iTunes) is slowly losing the love of record labels as the business of digital music downloads is slowly fading. Streaming subscriptions is the current trend in the music industry. iTunes radio, Apple’s 8 month old answer to this development, is also faltering. Therefore, there is every need for the company to re-strategise to compete with early adopters like Spotify and Pandora Media Inc. Conceivably, beats electronics may be it ripostes as it is already in music streaming subscription business and it will hit the ground running!

Beats by Dre about to Become Beats by Apple

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Beats acquisition by Apple will define Tim’s Cook reign

Beats, Beats by Dre, Applr

Apple Store in Hong Kong

The tech industry is abuzz with news of $3.2 billion Apple’s acquisition of Dr. Dre’s Beats. Interestingly many analysts and columnists believe that the deal is not worth it completely goes against Apple’s approach and strategies. I beg to differ with these opinions, and in this piece I’ll clarify why this deal could go down in the company history as one of a kind.

What is Good about Apple Acquisition of Beats

Many technology columnists and analysts have chosen to ignore what Apple (AAPL) stands to gain if the ‘Beats by Dre’ deal goes through. Should they have considered a few factors, perhaps they could have seen this deal in another way.

Here is why I can’t wait to see ‘Beats by Dre’ become ‘Beats by Apple’:

  • ROI on Beats comes quickly and Apple can monetize it better

Beats annual revenue from headphones alone stands at about $1 billion. Apple sells these high-end headphones in its stores. The music streaming services is an additional service, which comes with subscription and brings its own revenues. Apple can utilize these businesses better and perhaps lead the company to a double digit revenue growth. It would only take 3 or 4 years for Apple to get returns on its investment.

  • Beats Headphones could be Paired with yet to be Unveiled iWatch

Apple is yet to launch their iWatch, and this acquisition could lead to another innovation where the iWatch is paired with the headphones. The beats headphones are really great and people who hate Apple’s ear buds could use Beat’s instead.

  • Revamp its Music business

Acquisition of beats could help Apple revamp its music business, iTunes, which after a decade of success is now under threat, though minimal, from players like Spotify, Rdio and Pandora.iTunes’ growth has reached its peak and requires to be titivated a little to restore sales growth, which reversed in 2013.

  • Beats Headphones can be used with Android products

Unless Apple changes it, Beats high-end headphones can be used by Android users as well. Perhaps this could help Apple penetrate the massive Android market.

About Beats

Beats is a renowned high-end headphone maker and music streaming services provider co-founded in 2008 by rapper & businessman Dr. Dre and music producer Jimmy Iovine. The company has a market worth $1 billion and is still expected to grow. Its shareholders include Dr. Dre, Jimmy Iovine and billionaires Marc Rowan, James Packer, Len Blavatnik, and Lee Bass. The company, widely believed to be worth $2 billion, was rumoured to be arranging for an IPO after hiring chief financial officer An De Vooght. However, the news of Apple deal seems to have killed that possibility.

Conclusion

The biggest acquisition Apple has ever made is NeXT back in 1996 at a price of $404 million. This deal is still widely considered as one of the best deal the company ever made, as it brought back Steve Jobs who was callously removed from Apple, which he co-founded. Since then the company has often stayed away from big acquisitions. So Beats deal has come has a surprise to many. This acquisition marks the first major move spearheaded by Jobs’ successor, Tim Cook. The move could also mean that the iPhone maker’s new man at the helm has started pulling the strings. This acquisition might go along way to define Cook’s reign at Apple.