Apple is close to announcing its largest acquisition deal ever: the $3.2 billion purchase of Beats Electronics, the audio and music company behind the wildly popular Beats by Dr. Dre headphones and the new Beats Music streaming service. The deal is expected to be officially announced next week, but reports say there’s still a chance the deal could fall apart.
With Apple’s financial fortunes in decline since the Steve Jobs heyday, the company is looking for a way to regain some ground. Investing in a streaming music service could be the way to do that. According to The Financial Times, the Beats headphones, now seen everywhere, would also help Apple regain a bit of cool.
“Apple executives have admitted that its brand is in need of a revamp. Internal emails released during its recent patent trial with Samsung showed that its marketing chief Phil Schiller considered changing Apple’s ad agency after the success of its Korean rival’s ‘next big thing’ campaign,” the article says.
Moreover, the music industry is moving to streaming services where Spotify, Pandora and Rdio are big players. Pandora has 75 million users. Apple only introduced iTunes Radio last year.
Beats was founded in 2008 by music executive Jimmy Iovine and Dr. Dre with the idea of pushing onto the market a set of headphones that have better sound quality. Since then, the high-priced headset (some models can reach $450 a pair) have been worn on celebrities in and out of the music industry and the average music lover equally.
According to The New York Times’ Dealbook blog, sales of all Beats products have reached $1.5 billion. And with an infusion of $500 million from investment company The Carlyle Group, the company is valued at $1 billion. The company is responsible for consistently placing Dr. Dre on Forbes’ list of highest paid entertainers.
Apple has been criticized lately for a lack of innovation, with items like a new model iPhone and a smartwatch in the works, but nothing recently that has wowed the way the iPad and original iPhone did when they were introduced. This would be a way of purchasing some innovation rather than creating it from scratch. Still, the company’s continued impact on the music industry shouldn’t be underestimated. It reigns supreme as a seller of downloaded music.
This would be the latest in a string of big tech deals in recent months, including Facebook’s purchase of WhatsApp for $16 billion-plus. Apple is said to have $159 billion in cash on hand, so $3 billion is just a drop in the bucket.
For Dre, the acquisition is definitely something to crow about. Tyrese Gibson uploaded a video to Facebook last night in which Dre can be heard saying, “The first billionaire in hip hop right here from the motherf***ing west coast.” Apple is usually very very quiet about its business moves, so don’t know how that’s going to go over. Tyrese says there have been some Heinekens passed around so maybe Dre can tell Apple’s CEO Tim Cook to blame it on the alcohol.