Jimmy Iovine and Dr Dre as Apple employees reporting directly to CEO Tim Cook. Ian Rogers as an Apple employee reporting to Eddy Cue. The idea of Apple buying Beats Electronics and its Beats Music service sounds like a far-fetched April Fool’s story from industry blogger Bob Lefsetz – probably because it was, this year.
Yet this is no joke: the Financial Times claimed last night that Apple is on the verge of paying $3.2bn for Beats in a deal that could be announced “as early as next week”. The report claimed that the deal includes the Beats hardware brand and its spin-off streaming music service, while warning that “some details had yet to be agreed and talks could still fall apart”.
Cook recently hinted that Apple was on the acquisition trail, telling analysts that the company had bought 24 companies in the last 18 months, albeit none at this scale. “That shows that we’re on the prowl, I suppose you could say. We look for companies that have great people and great technology and that fit culturally, and we don’t have a rule that says we can’t spend a lot.”
There were earlier hints that make an Apple/Beats tie-up less shocking than it should be: a Reuters report in March 2013 about Cook and Cue meeting Iovine to “find out more” about the streaming service then known as Project Daisy, for example.
The New York Post reported yesterday that Iovine is in linked talks to join Apple as a “special adviser” to Cook on all things creative – his contract at Universal Music Group may be less of an obstacle if the label group’s stake in Beats was valued at the reported $400m as part of the acquisition.
But the real question, of course, is why Apple would buy Beats.
Apple wouldn’t be making the acquisition blind: it sells Beats headphones in its stores and will now be seeing the conversion rates for Beats Music (in the form of in-app purchases for its iOS app) too.
Opinions have been split on the main rationale though: plenty of people were being rude online last night about Beats’ headphones – a familiar branding-over-quality argument – but plenty of others arguing that Apple already has the quality factor nailed, but in 2014 is lacking the ‘cool’ factor that Beats has created around its brand. It’s a bring-your-prejudices speculation party on a global scale.
Talk of Apple making a panic-buy due to music download sales falling faster than expected last year, particularly in the US, also overestimate the importance of music to Apple’s business in 2014. Content remains a driver for sales of its hardware, and for a while now the content that does that best has been apps rather than songs.
Even so, music remains culturally important to modern, post-iPod Apple. If the company simply wanted a slick streaming app, it could probably have snapped up Rdio (and certainly Bloom.fm) for a fraction of the price. This is bigger than just a nice app.
If the Beats deal goes through, it’s a blend of branding, hardware+software+service integration, and talent. See it as a sign of Apple’s determination not to be outflanked by Spotify and Google/YouTube in particular in digital music’s future. But now let’s see if it goes through.