Apple on the Verge of Purchasing Beats Electronics

AppleApple Inc. is reportedly on the verge of purchasing Beats Electronics for an estimated 3.2 billion dollars. In fact, the deal might be completed as early as next week, although there are supposedly unresolved details which could still cause the deal to fall apart. This deal, which would be Apple’s largest ever purchase, would add to Apple’s already significant clout in the online music market. The NPD Group, a prominent market research company, said that Apple held 63 percent of the paid digital download market in 2013, and this acquisition would potentially increase this already significant market share. Perhaps the most interesting part of this acquisition, from the perspective of Apple, is Beats newly unveiled music subscription service which, for $9.99/month, allows customers access to all songs in Beats’ catalogue. This service would greatly complement the iTunes store which only allows users to download songs or albums.

ITunes Radio, launched by Apple in September, was the music giant’s attempt to enter into the subscription music market, and was at least partially effective in stealing some of the market from Pandora Media Inc. and Spotify. However, reviews of the service have been mixed, a situation that would undoubtedly be helped by adding Jimmy Iovine to Apple’s team, and by absorbing a fast growing rival. However, regardless of Beats’ potential value for Apple, Samsung’s new marketing campaign, which has had a devastating impact on the iPhone brand, must be seen as a significant motivating factor behind the possible deal. In fact, after incurring 17 billion dollars of debt last year, Apple has already generated 12 billion dollars of debt so far this year, reducing its reserves to a still considerable 133 billion dollars. This accumulation of debt, which was at least partially facilitated by Samsung’s recent successes, has undoubtedly played a role in this possible acquisition of Beats Electronics by Apple Inc.

The possible acquisition has also been seen as a radical departure from Apple’s reluctance to undertake large scale acquisitions under the leadership of Steve Jobs. In particular, the acquisition would likely be taken as an admission that Apple needs to look beyond its own research projects, based out of its labs in Cupertino, California, in order to stay at the top of the music market. Tim Cook, the chief executive for Apple Inc., has recently been particularly aggressive in his hunt for new acquisitions, buying 24 companies in the last 18 months, although this possible acquisition of Beats Electronics by Apple would undoubtedly be the most significant of his tenure. In addition to Beats’ presence in the subscription music market, Apple is likely looking intently at the high end Beats By Dr. Dre headphones, which were a huge factor in Beats’ 1.2 billion dollar revenue last year. The acquisition of these headphones would be a huge step up for Apple in the headphone market, where it is currently best known for the small white ear-buds it sells with its iPods and iPhones.

The increased acquisitiveness of Apple in recent years has paralleled that of other giants based in Silicon Valley, with Google acquiring Nest Labs for 3.2 billion dollars, and Facebook offering 19 billion dollars for WhatsApp Messenger. This trend has seen the huge technology giants growing ever faster, and it remains to be seen whether Apple’s possible purchase of Beats Electronics is a momentary aberration, or the beginning of a new and aggressive acquisitions policy.

By: Nicholas Grabe

Sources:
Bloomberg
CNBC
The Wall Street Journal

 

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