Apple Announces Beats Acquisition for $3 Billion, Iovine and Dre to Join Apple

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It's official: Apple announced on Thursday that it will acquire both Beats Music and Beats Electronics for a total of $3 billion. That's less than the $3.2 billion initially floated in leaks about the deal, but consistent with other rumors. Beats cofounders Jimmy Iovine (CEO) and Dr. Dre will both be joining Apple. The deal is expected to close some time in Apple's fourth fiscal quarter this year.

Jimmy Iovine and Dr. Dre

Jimmy Iovine and Dr. Dre
Source: Shutterstock

The $3 billion price tag of the acquisition—$2.6 billion immediately and another $400 million that will vest over an unspecified amount of time—makes the Beats acquisition the most expensive purchase Apple has made. In comparison, the company spent just $400 million acquiring NeXT in 1997, a company that included Steve Jobs.

Apple hasn't specified what it will do with Beats Music—a streaming music service—or Beats Electronics—one of the most popular headphone brands on the planet. Many in the digerati, including this reporter, have been very critical of Beats headphones

“Music is such an important part of all of our lives and holds a special place within our hearts at Apple,” Apple CEO Tim Cook said in a statement. “That’s why we have kept investing in music and are bringing together these extraordinary teams so we can continue to create the most innovative music products and services in the world.”

Apple also went on at length in its press release describing the premium nature of Beats headphone, saying:

In just five years since launch, the Beats "b" has become the brand of choice in the music and sports worlds, and is the market leader in the premium headphone market. Music superstars including Lady Gaga, Lil Wayne and Nicki Minaj have designed their own customized Beats headphones and speakers. Fashion designers and street artists such as Alexander Wang, Futura and Snarkitecture have collaborated on special limited products, while renowned athletes including LeBron James, Serena Williams and Neymar use Beats as a critical part of their training and game day process. Beats has quickly become part of pop culture in the US and with the acquisition the Beats product lineup will be offered in many more countries through the Apple Online Store, Apple’s retail stores and select Apple Authorized Resellers.

As noted above, CEO Jimmy Iovine will be joining Apple, though his title and role has not yet been specified. Apple noted that Mr. Iovine has been, "at the forefront of innovation in the music industry for decades, and he has been an instrumental partner for Apple and iTunes for more than a decade."

As CEO of Interscope Records, Mr. Iovine was an early supporter of iTunes and evangelized the iTunes Store to other music executives. Paired with senior vice president Eddy Cue, the two executives would make a formidable force in Hollywood and within the music industry when it comes to negotiating new deals and expanding Apple's services.

"I’ve always known in my heart that Beats belonged with Apple," Mr. Iovine said in a statement. "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."

For his part, Eddy Cue said, "Music is such an important part of Apple’s DNA and always will be. The addition of Beats will make our music lineup even better, from free streaming with iTunes Radio to a world-class subscription service in Beats, and of course buying music from the iTunes Store as customers have loved to do for years."

Reports last week said that Apple would operate Beats Music as a standalone service in order to build a streaming music service slowly. The idea, according to the reports, is that Apple wanted to allow the transition to streaming subscriptions to be as smooth as possible for the record industry as music downloads decrease.

Another report said that a driving motivator for the purchase was to acquire Mr. Iovine and Dr. Dre, the latter of whom was hardly mentioned in Apple's press release. That report said to consider these two hires in line with bringing a variety of non-tech people into Apple's leadership circles—including new Senior VP of Retail Angela Ahrendts—in order to make Apple into a more culturally aware company.

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Comments

CudaBoy

MacOb got it wrong again as Beats DID go for more than 3 Billion. And don’t give me lame “it’s not 3.3 Bil” baloney.  It’s a smart move to purchase “imagination” in the form of Dre and Iovine. iTunes has been slowly declining to the competition and this will help. This will help keep Apple Hip in the face of the boring lackluster ideas like oh, say another iPhone upgrade, or say - Home Automation - (snore!!!!)  or a “watch” (double snore).  Meanwhile, Elon Musk makes rockets that go to space and cars that don’t burn fossil fuel and go faster than hell and Google is beta testing an autonomous car (see www.greencarreports.com), the Swedes are testing solar cell “paint”.

kevinlane

Apple to Dr. Dre:  “Get lost.”

Elle Macgregor

I haven’t seen mention of this anywhere else on the internet so maybe I’m just remembering wrong, but there’s an aspect to this which I think has gone unnoticed. As part of the settlement with Apple records, I thought Apple computer had agreed to stay out of the music production business. If they keep Beats on as a curated company then could this allow them to move into being a music production label themselves?

Bryan Chaffin

Good point, Elle. Apple has settled with Apple Corp. on three occasions. On the last such occasion—in 2007—Apple got all of the trademark rights for a big fat payment rumored to be half a billion dollars.

ctopher

The only time Apple was “hip” was with the first gen iPod Nano. And like most hip things, it became played. What they did do however was ride the long tail of that hipness to the iPhone, but even then, it wasn’t the same because (as Microsoft pointed out) the least hip people on the planet, parents of teenagers, bought iPhones!

So while the hip companies are flying rockets and driving green cars (or having the cars drive themselves.) Apple is still trying to appeal to that sweet spot in the masses. Being an accessible but not cheap brand. Selling as much as they can to people with some means and being aspirational to people on their way up.

Someday, I may be taken to work in an autonomous Google car made by Tesla, but I’ll bet I’m consuming and communicating with an Apple product while I’m on my way!

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