Apple 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