Apple Beats Winners And Losers

Now that Apple has officially announced that it’s acquiring Beats Electronics and Beats Music for $3 billion, the media speculation engine can finally begin to wind down. While that happens, let’s take a quick look at the prospective winners and losers in the deal.

Winners

Apple: In Beats Music it gains the infrastructure it needs to move away from music downloads into streaming, in Beats Electronics it gains an entry into a market segment where it had no presence (high-end audio accessories), and by adding Beats co-founder Jimmy Iovine to the executive team it adds some sorely needed vision (see my previous post). 

Beats Music: It gets saved from swimming against the current of more established music services like Spotify and Pandora, which have a considerable head start. Although the company had some relatively deep pocketed investors in billionaire Len Blavatnik’s Access Industries and the Carlyle Group, that’s still not enough to compete with Apple, Amazon and Google in the long run when they enter the market.

Beats Electronics: Gets purchased at its peak or just beyond, so it’s saved from having to worry about market attrition. Plus it now gets to take advantage of the engineering and manufacturing expertise of Apple.

Tim Cook: Makes an attempt to fill a hole left in the company after the passing of Steve Jobs, which makes him look somewhat visionary himself.

Jimmy Iovine: Makes the leap from the music business to big-time tech while cashing out from Beats. Now he’ll get to have a say in the direction of the tech giant, which may be the ultimate in industrial glamour these days.

Dr. Dre: Raises his status in the urban community by cashing out to become the first near-billionaire hip hop artist/producer, and is able to escape the music business if he wants. Read more on Forbes.

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The Puzzle Piece That Apple Really Bought

Now that the announcement has been made that Apple’s acquisition of Beats Electronics has been completed for $3 billion, and that Beats co-founders Jimmy Iovine and Dr. Dre will join Apple in yet unspecified executives roles, it’s important to take a step back and examine what has really gone down here. There’s much more than meets the eye.

As I alluded to in a previous post, there were just as many reasons for Apple to avoid the Beats deal as there were to make it. That said, just about everyone (myself included until now) has missed the big picture point of the purchase. The deal really isn’t about Beats music service or its headphone business. It’s all about Iovine.

Apple CEO Tim Cook realized that while he may be a great operations guy, he doesn’t have the market vision of his predecessor Steve Jobs (who could?). Music has been responsible for the resurgence and subsequent market rise and dominance of Apple, not so much from a revenue point of view (although the sales from music are substantial), but as means to an end to sell what really makes the company money - its hardware. Apple needs someone who is capable of looking into the future in a way that no one else at Apple has been able to since Jobs passed nearly three years ago.

While it’s too much to expect Iovine to be another Jobs, he has proved to be quite deft at navigating the minefield that is the entertainment industry - enough so to build a substantial billion dollar company in a mere seven years. This was done by seeing a hole in the market (high-end headphones), then recruiting the well-respected hip hop producer Dr. Dre to provide credibility and marketability to an underserved market. He then granted an exclusive manufacturing and distribution license to Monster Cable, a company perfectly suited to instantly provide widespread availability of the product. The distribution deal we terminated at the beginning of 2012, at which time Beats took the manufacturing and distribution in-house. All the hard work of establishing the brand had already been done. Read more on Forbes.

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Would You Wear Your Music?

Apple Thinks Big With The Wearable Tech Market

From all indications it appears that the Apple - Beats Electronics deal will come to pass, and as we move forward from the initial leak a week or so ago, many analysts are focusing on the wearable tech part that Beats may bring to the Apple deal.

As I and other industry observers have written, Beats headphones are as much a fashion accessory as an audio accessory, with the balance clearly leaning towards the fashion side of things. There are plenty of other headphones available from serious audio manufacturers that not only sound better but are also cheaper, but virtually none come close to the sales numbers. Beats excels at marketing (much to the chagrin of the serious audio manufacturers), and as a result its headphones are all the rage, especially in the Urban community thanks to co-founder and uber-producer Dr. Dre (“Beats By Dr. Dre” is the brand name).

This scenario is one that’s actually very near and dear to Apple’s heart. It wasn’t that long ago that the iPod was the go-to music device for anyone that was even remotely into music, and the distinctive white earbuds made exactly the same statement then that Beats makes today, only to a much broader demographic.

The trend continued with the introduction of the iPhone, where you just weren’t hip unless you had one (signified again by the white earbud/microphone), which carried on until the various Android smartphones gained marketshare over the last 12 months or so. As a result, owning an iPhone no longer holds the same status as it once did. Read more on Forbes.

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

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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