Apple + Beats Reportedly about Preserving Music Industry and Hiring Iovine/Dre

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AppleBeatsApple wants to buy Beats mainly to bring CEO Jimmy Iovine and hip-hop legend Dr. Dre on board, according to twin reports from TechCrunch. Apple is also cognizant of its role pumping money into the music industry through the iTunes Store, and plans to operate Beats Music as a standalone service-on-the-side in order to provide a smooth transition from music downloads to music streaming.

Apple funneled roughly US$1 billion to record labels and their artists in 2013, a figure representing 63 percent of industry revenues from the direct sale of songs and albums to consumers. According to unnamed sources cited by Josh Constine, Apple is worried that if it launched a dedicated iTunes streaming service, those revenues would crater, striking a mortal blow to that industry.

According to this source, the nature of Apple's worries are not its own revenues from music—which are barely a line item on its balance sheet—but rather the disruption it would cause to the labels and their artists.

Accordingly, Apple has instead chosen to buy Beats, and with it Beats Music, so that it can operate a streaming service outside of iTunes and its 800 million account holders. Apple will then be able to grow that service while iTunes Store download numbers decrease, preserving something close to an equilibrium for the record industry.

The end goal is to launch an iTunes-branded streaming service with a $5 per month price tag, half that of industry leader Spotify, but only when Apple can do so without cratering the very industry that provides most of that music.

A Brief Aside

I mention that last bit because independently-produced and released music is an ever-growing part of the music business. Declining label revenues has resulted in fewer artists being signed, while decreasing costs and the ever-increasing abilities available in desktop music production have made it both necessary and possible for bands to record and release themselves.

A third factor for independent musicians is the Internet, which has made it possible for scattered fans around the world to find and support a wider and more diverse number of bands.

The flip side to all this indy stuff is that almost all of these bands have day jobs. Only a very few rock/rap/pop/country stars get to be "rich" these days.

Next: Acquihiring Jimmy Iovine and Dr. Dre In Context with Other Apple Hires

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Comments

MacFrogger

I gotta agree Bryan - I was skeptical of this deal at first too.  But I’m coming around, though I admit I’m not totally there yet based solely on the price being paid.

Here’s a point you didn’t mention that’s worth noting: Even if Beats headphones are subpar, they are still selling extremely well with the youngsters for whatever reason (style?).  You can expect them to sell even better after Apple audio engineers have had a chance to improve their sound quality.

Beats - like Apple - does not have an ad-based model. Furthermore, its a company that’s actually - again like Apple - in business to make a profit. So there’s a fit of the corporate cultures.  (C’mon Google - ads on thermostats??)

My final point: IF bringing on board Iovine and Dre is a big part of this deal in terms of Apple’s music plans moving forward, Cook had better have golden handcuffs on them…

ksec

So how is Beats different to Apple running its own Music Streaming services? This piece still fail to capture the why. Those people are talents, but the price 3.2B is ridiculously high.

PXLated

MacFrogger - Beats headphones are selling well “because” of what some say is subpar sound. As Iovine says in one of his interviews, the Beats headphones mimic a more emotional version of the music. Most musicians want that too - it mimics a live performance. A famous record producer (can’t remember which) when asked what he wanted on his gravestone answered with “more bass”, That’s the Beats sound. So let’s hope Apple engineers don’t get their hands on the sound, it will destroy what they are all about.
I could see two different versions of Beats being introduces - The current version (Beats-Bass) and an audiophile version though.

Blissmonkey

If Beats, like Apple, has a successful business model, it would be a strange thing indeed to shell out so many clams simply to risk it all by altering the formula (changing up the headphones).

I like the article, but am really looking forward to hearing what Cook, Dre, and Iovine all have to say about the deal at WWDC—or whenever, if ever they decide to open up about it (which they are under no obligation to do, publicly).

MacFrogger

PXLated: “I could see two different versions of Beats being introduces - The current version (Beats-Bass) and an audiophile version though.”

Why not just one version, that includes an adjustable bass control?  That you can take to “Ultra-base”, “Mega-Base”, “Ace-o-Base”, or whatever the geniuses in marketing want to come up with?

Blatboy

Alas, if this is yet another thing that keeps that “indy musicians all have day jobs” ball rolling… I’m not sure how I feel about that.  I have doubts that Apple/Beats will end up treating your non superstar musicians/“artists” any better than Spotify or Pandora.  Sure, as a consumer, it’s freakin’ awesome.  What price that has on the actual folks that create the stuff (I hesitate to use the term “industry”) I guess the future only knows.

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