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Apple Confirms It is Buying Beats Electronics

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The much publicized Apple beats deal is now official. Apple Inc. (Nasdaq:AAPL) has said it is buying Dr Dre’s Beats Electronics for $3 billion. The deal, which has drawn criticism and praise alike, will see Jimmy Iovine and rapper Dr. Dre work under Apple’s internet services segment headed by Executive Officer Eddy Cue.

The beats deal has been tipped to help Apple regain its music mojo. The company, which revolutionized digital music through iTunes, has been struggling in subscription music – a service that is slowly replacing digital music downloads. The high-end Smartphone maker is now set to pile pressure on the industry leaders, Pandora and Spotify.

The executives from both Beats and Apple said that the former will retain its brand and remain separate from Apple. Beats’ high-end headphones will continue to be sold in Apple stores, alongside Apple products.

Beats Streaming Music and iTunes

Some people may feel that keeping both Beats’ streaming music service and iTunes digital music store and streaming radio service is like duplication of projects. However, the two brands are completely different and will be extremely difficult to merge. So Apple has offered to play it safe by letting Beats continue operating independently.

Apple will be happy to have the legendary music producer Jimmy Iovine on their side. Since the demise of Steve Jobs, the iPad maker has gradually been losing touch with the major labels following the declining sales of albums and individual songs in iTunes music store. There is hope among shareholders and analysts that bringing in a music industry insider will help the company recapture the lost grounds.

According to Apple’s CEO, Tim Cook, Dr. Dre and Iovine are an incredible asset that his company is lucky to find. And while many people are concerned with the $3 billion price tag, Tim Cook is happy to have gotten a music streaming service that allows users to create playlist alongside a rare blend of professionals. The Apple boss praised the duo and was quoted by Forbes as follows:

“These guys are really unique…It’s like finding the precise grain of sand on the beach. They’re rare and very hard to find.”

Perhaps what he is not saying is that the talent the pair has is what iTunes was missing. And because there was no time to breed such talent from inside, so he had to acquire it through the beats deal.

Beats Deal – Apple’s Biggest Acquisition Ever

Apple and Beats have agreed the terms of acquisition as $2.6 billion will be paid in cash whereas the remaining $400 million, which is only $4 million shy of NeXT acquisition in 1996, will be in stock. Until Beats deal came around, Apple has avoided big buyouts, but possibly those days may be all gone. This is Apple under Tim Cook, not Steve Jobs! However, poaching talent has been one area where Silicon Valley firms outdo each other, and Apple just got Iovine on their side!

Beats deal is yet to be officially concluded and it expected to be finalized in this fourth quarter. This will be Apple’s biggest acquisition ever, dwarfing the NeXT buyout that brought back Jobs to “his” company.

Streaming Subscription may Boost Apple

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Apple may Reinvent with Music Streaming Subscription

streaming subscription, apple. itunes

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!