Apple pays US$3b for music streaming and headphones firm Beats
Apple will buy Beats for about US$3 billion and bring recording mogul Jimmy Iovine into its ranks, hoping to win points with the music industry and help it catch up in fast-growing music streaming.
As expected, Beats co-founders Iovine and rapper Dr Dre will join Apple as part of the acquisition of the music streaming and audio equipment company.
They should prove key in forging relationships with an industry that historically viewed Apple with suspicion but in recent years has pressed the iPhone maker to do more on subscription services, a market expected to eclipse song downloads in the long run.
Iovine’s music industry relationships could ease notoriously difficult licensing negotiations for a future streaming service, recording industry executives say.
“The ugly truth is that there is such a Berlin Wall between Silicon Valley and LA,” Apple chief executive Tim Cook told the Wall Street Journal in an interview.
“The two don’t respect each other, don’t understand each other.”
While the price represents an iota of Apple’s roughly US$150 billion cash hoard, the purchase is a significant departure for a company that for two decades has stuck mainly to acquisitions worth hundreds of millions of dollars.
The deal is seen as Apple’s effort to jump-start an uneven attempt to make headway in music streaming, the fastest-growing segment of the market, as iTunes sales decline.
Pandora Media and Spotify have raced ahead while Apple’s eight-month-old iTunes Radio has not made much of a dent.
With music downloads in decline, record labels have also put pressure on Apple to get its act together on streaming. The record labels hope Apple can turn Beats Music into a strong competitor to Spotify and other streaming services, sources familiar with the matter have said.
“Apple created the digital download business and has had an amazing run, but the industry is going in the streaming service direction,” said Daniel Weisman, a manager for Roc Nation who represents bands.
The transaction is expected to close in the fourth quarter, Apple said on Wednesday.
Apple is also gaining a line of high-end headphones popular with a young urban demographic, bumping up its “cool” factor, analysts have said.
But industry executives say Apple was most impressed with Beats’ five month-old music service.
The market as a whole is burgeoning. Streaming subscriptions jumped 51 per cent last year to US$1.1 billion, out of US$15 billion spent on music, according to the International Federation of the Phonographic Industry. Meanwhile, downloads slipped 2.1 per cent.