Sunday, May 11, 2014

Why The Apple - Beats Deal Makes Sense, And Why It Doesn’t

Dr. Dre and Jimmy Iovine of Beats Electronics image
Dr. Dre and Jimmy Iovine
Rumors are flying about the imminent purchase of headphone maker and streaming music service Beats Electronics by tech giant Apple for a reported $3.2 billion dollars, which has caused a lot of head scratching in both the tech and music communities. Should this deal come to pass, a number of questions come to mind.

Why is Beats a fit for Apple?
Apple sees music downloads from its iTunes store diminishing, and if it reads any of the reams of research on the subject, knows very well that downloads may be more endangered than the CD. Apple dipped its toe into the streaming waters last year with iTunes Radio, which seemed like a half-hearted effort at the time and even more so now, as the subscription numbers have never really taken off and have been stagnant for the last two quarters.

That said, a non-interactive service like iTunes Radio doesn’t appear to be where music’s future lies, at least financially. Pandora already has a huge lead in this part of the market, but relatively few paying subscribers. It’s thought that eventually most users will want to move to an interactive service like Spotify where they get more choice over what they’re listening to, which is where Beats Music is and iTunes would eventually like to be. 

Beats Music service provides a ready infrastructure for Apple and already is integrated with mobile partner AT&T. Plus, if it’s true that the company already has between 10,000 and 20,000 subscribers (which can’t be verified since Beats doesn’t report these numbers), that’s actually a huge jump over every other service already in terms of paying subscribers. Even if the subscriptions aren’t quite to that level, it’s still pretty good for a service that only just launched and is yet to be available outside the US. Read more on Forbes.

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