Apple close to acquiring Beats for US$3.2b

PUBLISHED : Saturday, 10 May, 2014, 1:20am
UPDATED : Saturday, 10 May, 2014, 1:20am

Apple is close to striking a deal with Dr. Dre.

In what would be the largest-ever purchase by the iPhone maker, Apple is in advanced talks to acquire headphone maker and music-streaming service Beats Electronics for US$3.2 billion, people with knowledge of the matter said.

They are buying into the future and [that is] streaming and subscription

A deal for the California-based company, which was founded by music-industry executive Jimmy Iovine and hip-hop artist Dr. Dre, would bolster Apple's online music capabilities by giving it ownership of the Beats Music service that started earlier this year.

For US$10 a month, subscribers get unlimited access to all of the songs in the service's catalogue through a smartphone, tablet or Web browser.

Music has long been one of the cornerstones of Apple's business, with its iTunes store and the iPod music player that reignited the company's growth more than a decade ago.

Yet digital-download sales fell for the first time ever last year as people turn to streaming services such as Spotify, Google's YouTube and Pandora Media to listen to music, according to Nielsen SoundScan.

"The age of digital downloads is basically over," said Aram Sinnreich, a media professor at Rutgers University who studies the intersection of technology and music.

While paying US$3.2 billion would use just a fraction of the US$150.6 billion in cash and investments on Apple's balance sheet, a deal would signal that the company is serious about introducing its own music-subscription service to rival Spotify.

"They are buying into the future and the future is going to be streaming and subscription," said Jon Irwin, the former president of rival music service Rhapsody International.

"Revenue from streaming and subscription is growing. Files and downloads are shrinking. Everyone has to engage in streaming and subscription."

Apple took a step in that direction last year, introducing iTunes Radio, which is an advertising-supported music streaming service that competes with Pandora. ITunes remains the world's largest seller of music.

With a deal, Apple also would gain control of the Beats headphones, for which the company is well known. Iovine and Dr. Dre started Beats in 2008 as people used iPods and smartphones to listen to more music on the go.

Dr. Dre, best known for his seminal rap album The Chronic, and Iovine, a music producer and executive who has worked with artists ranging from Bruce Springsteen to Lady Gaga, have struck partnerships with many musicians and athletes, including basketball all-star LeBron James and San Francisco 49ers quarterback Colin Kaepernick, to market the headphones. The devices cost from US$170 up to US$450.