What Apple Sees as Key to $3 Billion Beats Audio, Music Deal

NEWS ANALYSIS: In buying Beats, Apple is apparently moving to a multiplatform approach when it comes to serving up subscription music.

Beats Audio Apple deal

In a deal that has been rumored for nearly a month, Apple finally made its move and announced on May 28 that it is acquiring the Beats Audio franchises for $3 billion—$2.6 billion in cash and $400 million in stock.
Beats Audio and Music, founded by rapper Dr. Dre and pop music producer Jimmy Iovine, makes high-end headphones and operates Beats Music, a popular streaming radio service.

The huge transaction barely moves the needle on Apple's cash accounts. Following the deal, Apple still will have some $148 billion in cash and investments on hand, give or take a few hundred million.

Significantly, with the acquisition of the music service, Apple showed that it is getting a little less proprietary and a lot more open-minded in its delivery of content to customers. The Beats Music part of the deal, which many observers think is the key to the entire transaction, shows clearly the Cupertino, Calif.-based company's intention to move to a multiplatform approach.

Cook: Beats Music to Run on Android and Windows Devices

Apple CEO Tim Cook said that the company will continue to operate Beats Music not only on Apple's iOS devices but also on Google's Android and Microsoft's Windows Phone operating systems, according to a report by the Financial Times' Tim Bradshaw. This marks the first time Apple will offer a music app for a rival's mobile operating system.

Something that is unresolved at this early date is how Apple will handle Beats Audio's current partnerships with laptop and mobile device makers—and Apple marketplace foes—HP and HTC, which have embedded Beats Music in many of their devices for a few years.

In an internal memo to Apple employees and published in 9to5Mac, Cook wrote the following:

"Apple's history in music began with selling Macs to musicians. That remains important to us today, but we also bring music to hundreds of millions of customers with iTunes, which is at the forefront of the digital music revolution. Music holds a special place in our hearts at Apple, and we know that we can make an even bigger contribution to something that is so important to our society. That's why we have kept investing in music and why we're bringing together these extraordinary teams—so we can continue to create the most innovative music products and services in the world."

"Beats co-founders and music industry pioneers Jimmy Iovine and Dr. Dre will join Apple, along with their team of employees. Jimmy has been on the cutting edge of innovation in the music industry for decades, including as a key partner for Apple in the launch of the iTunes Music Store more than 10 years ago. He has produced or collaborated with some of the most popular artists in history, and been an important contributor to the success of the iTunes Store.

"Beats Music was built with deep respect for both artists and fans. We think it’s the first subscription service to really get it right. Both Apple and Beats believe that a great music service requires a strong editorial and curation team, and we will continue to expand what we do in those areas. The addition of Beats will make our incredible iTunes lineup even better, extending the emotional connection our customers have with music."

Key Data Points in the Deal

eWEEK contributor Don Reisinger made some key points a couple of weeks ago in a slide show about this pending deal. Some of the key data points:

--Beats has a budding streaming audio service in place that Apple could capitalize on. Apple is already offering its iTunes Radio streaming service, but it could use some of the technology in Beats and bring it to iTunes. Although this acquisition is more likely about hardware, software does play a role.

Apple ostensibly wants to build a formidable streaming subscription service in light of the growth of that segment in recent years, particularly with services such as Spotify, Pandora and Sirius. iTunes Radio, Apple's own entry into the subscription streaming music business, is limited to traditional radio-over-the-Web constraints (no interactivity, no choosing favorite songs or making personal playlists, etc.).

--Beats headphones fit nicely into Apple's product line. For one thing, the devices are already sold in Apple stores, and they're also well-designed. Best of all, Apple could offer them with special deals on Macs or other products. Beats actually seems to complement Apple right now.

--Given Beats' headphones, Apple could possibly benefit by taking over the company's device engineers. Those folks obviously know how to develop hardware, and their acumen on the audio side isn't too shabby, either. This acquisition could help Apple gain access to very talented engineers it currently doesn't have working on its team.

Chris Preimesberger

Chris J. Preimesberger

Chris J. Preimesberger is Editor-in-Chief of eWEEK and responsible for all the publication's coverage. In his 15 years and more than 4,000 articles at eWEEK, he has distinguished himself in reporting...