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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6 Reasons Why iTunes Ping Is So Important

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Steve Jobs and Apple has done it again yesterday with the introduction of iTunes 10, which now contains the music social network Ping.

What is Ping? Jobs explained it this way, "It's like Facebook and Twitter meets iTunes." Although Apple is promoting Ping as a music discovery platform where artists and fans can interact, it's a lot more strategic than that. Until now Apple has mastered technology and content, but Ping gives them the one piece that they never had before - people, the most important of them all.

But Ping will be very significant for artists and bands too.  Here's how:

• 1) There are already 160 million iTunes users. That doesn't mean that they'll all use Ping, but it provide a huge base of people already on the network.

• 2) iTunes has a direct connection to your content that other social networks don't have. This should make an impulse buy easier.

• 3) Ping is about all music, unlike other social networks (sorry MySpace, you don't count anymore). At least in the beginning, there won't be any other distractions.

• 4) iTunes users consume content. They're used to buying, and they already have credit cards on file.

• 5) Ping is about music discovery. Discovery is still the Holy Grail of the music industry. Ping provides discovery on your own, discovery through friends, and discovery from other fans, and anything to help people find your music is a good thing.

• 6) Ping has a direct connection to buying tickets to gigs. With their database of over 17,000 shows and concerts (provided by LiveNation, by the way), it'll make it easier for a fan to purchase a ticket without ever leaving the network.

There's also a lot to be said for Apple's traditional ease-of-use, that could play a part in the development of Ping into something larger than intended.

Look for an announcement soon of how you can claim your artist page on Ping (check Lady Gaga's artist page out as an example). Then be sure to do it right away. Although it may be too early to tell, there doesn't seem to be a downside, unless you like being undiscovered, of course.

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Digital Music Numbers Drop After Rise In Price

Music insiders said it would happen and the numbers show that it finally has. As predicted (see my previous article), after the major labels raised the track price of their most popular digital hits from 99 cents to $1.29, digital sales have declined for the first time ever.

According to Nielsen SoundScan (who tracks all physical and digital sales for the industry), the drop was only a little less than 1 percent, but it was certainly symbolic that the shortsightedness of the major labels has soured one of the few remaining bright spots of a suffering industry.

So why did they raise them in the first place? First of all, it was a power play against Steve Jobs and iTunes. The major labels have always hated the fact that a computer company was not only setting the price for their product, but distributing it as well. The second reason was that they figured (wrongly it would seem) that they'd make more money from the same amount of downloads since they never believed that the sales would decline. Even if they did, it was thought, they'd make the same money with fewer sales.

While this may be true, it's simply a bad idea from the longevity standpoint of an artist. In Music 3.0, you want as many fans to buy in as possible, not fewer. Sure, many will just illegally download the music anyway, but many won't because of the hassle factor involved. The more involvement from the fanbase, the better for everyone.

Regardless, raising the prices on a product that's not a necessity during a severe recession doesn't make much sense no matter what industry you're in.

That being said, the labels do have some really smart people working for them who could really change the landscape of the business if they were only given a chance. That just might be too much to hope for, I'm afraid.

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Follow me on Twitter for daily news and updates on production and the music business.

Check out my Big Picture blog for discussion on common music, engineering and production tips and tricks.