Apple Acquiring Beats

Apple

On May 28, Apple announced that it will be acquiring Beats Electronics and Beats Music. This new purchase came with a three-billion dollar price tag with plans that it will boost Apple’s music services. The breakdown of the purchase was about $2.5 billion for Beats Electronics and nearly $500 million for Beats Music, making this the most costly acquisition in Apple’s history. Details of the sale include $2.6 billion in cash along with $400 million in Apple stock.

Beats’ electronic products consist of headphones, ear-buds, speakers, accessories and audio technology of which sales reached $1.3 billion last year. Beats Music, a streaming service that was launched in January of this year provides users with unlimited access to more than 20 million songs from a wide variety of genres. An exclusive feature of Beats Music is that unlike other streaming services, Beats uses curators who are music experts in creating playlists for users. This unique music service currently has 250,000 subscribers. Last year, Apple launched its own internet radio called iTunes Radio, however, it did not meet the anticipated level of success.

The co-founders of Beats, hip-hop mogul, Dr. Dre and music executive, Jimmy Iovine are expected to continue working with Apple executive, Eddy Cue, following the deal. Although some Apple analysts are unclear as to the reasoning behind the acquisition of Beats, a statement made by Apple’s Chief Executive Officer, Timothy D. Cook may indicate that the deal was profitable not just due to the product line. In an interview with the Associated Press, Cook said, “These two guys have a very rare set of skills. It’s like finding a particular grain of sand on the beach. It’s that rare.” He also stated that Apple has had a relationship with Dre and Iovine for many years and that the two blend well with the company’s culture. The mutual admiration each company has for one another has been made clear. Jimmy Iovine stated, “I’ve always known in my heart that Beats belonged with Apple.” He said that Beats was inspired by Apple’s mastery of combining culture with technology.

In addition to this being the most expensive purchase Apple has made, offering products that were produced by a different company will also be something outside of the Apple “norm.” Beats will remain its own brand and the existing line of Beats products will be sold at Apple stores. Also, Apple will be offering Beats Music in addition to its current service iTunes providing users the option of purchasing individual songs or a subscription for streaming music.

Beats was established in 2008 and became known for their first product, the Beat’s By Dre Studio Headphones. Dre and Iovine will reportedly continue to have stakes in Beats following Apple’s acquisition of the company. The deal is expected to come to a close before the end of September, this year. Not only will Dr. Dre and Jimmy Iovine make a hefty profit from this deal, Beats investors will also walk away with heavier pockets. Carlyle Group, a private equity firm, which held a 35 percent stake in the company will walk away with the most from amongst the investors. Also, Universal Music Group is expected to receive over $400 million.

By Sarah Temori

Sources:

Beats
NY Times
LA Times
Wall Street Journal

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