- Gives Apple access to Beats streaming music service and allows it take on Spotify
- Beats co-founders Jimmy Iovine and Dr. Dre will join Apple
- Claims team could also use their experience to develop iWatch and other wearable systems
- Dr Dre famously boasted deal would make him hip hop’s first billionaire
Apple has confirmed it is buying Beats Electronics, the headphone and music streaming service set up by rapper Dr. Dre and recording impresario Jimmy Iovine.
The $3bn acquisition by far the most expensive in Apple’s 38-year history, and comes three weeks after the deal was first rumoured – although the initial price was believed to be $3.2bn.
Apple Boss Tim Cook revealed the deal, saying ‘We have known these guys forever, we’ve dated, we’ve gone steady and now we are getting married.’
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(L-R) Jimmy Lovine, Dr Dre and Luke Wood of beats, which is set to be bought by Apple for $3bn if the firm’s biggest ever acquisition.
Beats was founded in 2008 by Dr. Dre, now a hip-hop producer, and Iovine, a longtime recording industry executive who is currently chairman of Universal Music Group’s Interscope Geffen A&M Records.
It now dominates the luxury headphone market.
Its equipment also has been a big seller in Apple’s stores.
Operating from its Culver City, California, headquarters, Beats commands 62 percent of the $1 billion U.S. market for headphones priced above $100, according to NPD Group.
The gear, which emphasizes bass, also has been endorsed by several star athletes, including San Francisco 49ers quarterback Colin Kaepernick and New Jersey Nets forward Kevin Garnett.
Beats Music, the music streaming subsidiary of the electronics maker, has more than 250,000 subscribers, according to Cook.
‘I’ve always known in my heart that Beats belonged with Apple,’ said Jimmy Iovine.
As part of the acquisition, Beats co-founders Jimmy Iovine and Dr. Dre will join Apple.
‘The idea when we started the company was inspired by Apple’s unmatched ability to marry culture and technology.
Apple’s deep commitment to music fans, artists, songwriters and the music industry is something special.’
The price consists of $2.6 billion in cash and $400 million in Apple stock that will vest over an unspecified time period.
The deal is expected to close before the end of September.
It is believed Apple is also interested in Beats expertise in developing wearable products and it edges closer to a much anticipated iWatch launch,
With $1.1 billion in revenue last year, Beats is already making money and will boost Apple’s earnings once the new fiscal year begins in October, Apple CEO Tim Cook said in an interview.
‘This relationship started a decade ago, so we know there is an incredible cultural fit.
‘These two guys have a very rare set of skills. It’s like finding a particular grain of sand on the beach. It’s that rare.’
Iovine, 61, and Dre, 49, will both become key executives in Apple’s music divisions, though Cook said their roles haven’t been determined yet.
Cook said Beats’ music streaming service was the main selling point in the deal.
The growing popularity of music streaming services such as Pandora and Spotify has been reducing sales of songs and albums, a business that iTunes has dominated for the past decade.
U.S. sales of downloaded songs slipped 1 percent last year to $2.8 billion while streaming music revenue surged 39 percent to $1.4 billion, according to the Recording Industry Association of America.
Although Apple broke into streaming with the launch of iTunes Radio last September, the service has not been as popular or as lucrative as the company expected, according to two people familiar with the matter.
The people were not authorized to speak publicly about the matter and spoke on condition of anonymity.
Apple is counting on the Beats acquisition to boost its cachet with teenagers and younger adults while trying to remain a leader in digital music — an industry that looks much different than when Apple reshaped the scene with the 2001 debut of the iPod.
Dr. Dre, who founded Beats electronics with record producer music producer Jimmy Iovine. The firm could now be sold to Apple.
The purchase marks Apple CEO Tim Cook’s biggest strategic break from the way the Cupertino, California, company was led under co-founder Steve Jobs, who died in October 2011.
Jobs favored smaller acquisitions and didn’t believe subscription music plans would be popular.
Before Beats, Apple’s biggest acquisition had been its $400 million purchase of NeXt Computer, a company that Jobs founded after being ousted from Apple in the 1980s.
Cook said he never considered what Jobs would have thought about the Beats’ acquisition. Jobs ‘told me to do what was right,’ Cook said. ‘And I am 100 percent certain this is what is right.
‘This is one of those things that we will look back upon and say it was meant to be.’
Sony Music CEO Doug Morris, who considers Iovine to be his best friend, believes Cook is making a smart move that will give Apple even more credibility in the music industry.
‘It’s a game changer because Jimmy is that kind of guy who can change a game,’ Morris said.
‘I am not saying he is Steve Jobs, but he is a guy with new ideas and he really knows how to build the bridge between music and technology.’
But some analysts question whether Beats will be a good fit for Apple, which makes most of its money selling hardware such as iPhones and iPads.
Beats has also partnered with a host of celebrities, including Lady Gaga, to create endorsed earphones.
Forrester Research analyst Frank Gillett says Apple would have been better off developing its own headphones in-house and expanding into music subscriptions through iTunes.
‘It’s hard to understand why Apple would have to spend $3 billion on a nascent streaming service and a line of bass-heavy headphones,’ Gillett says.
Yukari Iwatani Kane, the author of ‘Haunted Empire,’ an inside look at Apple since co-founder Jobs’ death, also sees a disconnect.
‘Culturally, Beats is the complete opposite of Apple,’ Kane says.
‘It’s known for being loud and bold and in your face. It doesn’t fit with Apple’s understated, discerning brand.’
The Beats deal also aligns Apple with the push toward higher-quality music, reversing a decline in fidelity as people abandoned vinyl records for CDs and then switched from CDs to MP3s.
The Beats move follows a string of high-priced deals in Silicon Valley, after Google acquired smart home developer Nest Labs for $3.2bn and Facebook offered an initial $19bn for WhatsApp Messenger, and then bought VR firm Oculus for $2bn.
Apple executives Tim Cook and Eddy Cue have previously met with Iovine to discuss streaming music services and Apple and Beats have partnered up to sell Beats earphone products in Apple Retail stores.