News / Economy

Apple Chases Music Streaming Revenue With $3B Beats Purchase

From left, music entrepreneur and Beats co-founder Jimmy Iovine, Apple CEO Tim Cook, Beats co-founder Dr. Dre, and Apple senior vice president Eddy Cue pose together at Apple headquarters in Cupertino, Calif., May 28, 2014.
From left, music entrepreneur and Beats co-founder Jimmy Iovine, Apple CEO Tim Cook, Beats co-founder Dr. Dre, and Apple senior vice president Eddy Cue pose together at Apple headquarters in Cupertino, Calif., May 28, 2014.
VOA News
Apple is striking a new chord with a $3 billion acquisition of Beats Electronics, a headphone and music streaming specialist, that Apple is hoping will help it catch up in the fast-growing music streaming business.

Beats co-founders Jimmy Iovine and rapper Dr. Dre will join Apple as part of the acquisition of the music streaming and audio equipment company.

They should prove key in forging relationships with an industry that historically has viewed Apple with suspicion but in recent years has pressed the iPhone maker to do more on subscription services, a market expected to eclipse song downloads in the long run.

"Music is such an important part of all of our lives and holds a special place within our hearts at Apple," chief executive Tim Cook said in a statement, according to Reuters.

"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."

Bringing Beats into the Apple fold will offer opportunities to weave iTunes Radio service into more devices, and even spread the App Store for mini programs to other products, according to analysts.

Iovine's music industry relationships could ease notoriously difficult licensing negotiations for a future streaming service, recording industry executives say.

While the price tag represents an iota of Apple's roughly $150 billion cash hoard, it marks a significant departure for a company that for two decades has stuck mainly to acquisitions worth hundreds of millions of dollars.

Music downloads vs. streaming

With music downloads in decline, the move is expected to help Apple, which was a pioneer in online music, ramp up its efforts to counter the successful models of streaming services like Pandora, Spotify and others.

“Apple created the digital download business and has had an amazing run, but the industry is going in the streaming service direction,” said Daniel Weisman, a manager for Roc Nation who represents bands.

Apple is also gaining a line of high-end headphones popular with a young urban demographic, bumping up its “cool” factor, analysts have said. But industry executives said the company was most impressed with Beats' 5-month-old music service.

The market as a whole is burgeoning. Streaming subscriptions jumped 51 percent in 2013 to $1.1 billion, out of $15 billion spent on music, according to the International Federation of the Phonographic Industry. Meanwhile, downloads slipped 2.1 percent.

Some experts told AP that the Beats acquisition is a good move.
"When you think about what worked for Beats, namely streaming and if you think about what the total size of the streaming potential is in the market for Apple, especially if it combines with the hundreds of millions of downloads they have right now and the leverage that they could equity or asset against, I don't think it's overpriced," said Erich Joachimsthaler, the Founder and CEO of Vivaldi Partners Group.

The other prize is Beats' co-founder himself. Iovine, 61, is best known as the co-founder of Interscope Records, a rap music pioneer that branched out to include acts like Lady Gaga and U2.

"I've always known in my heart that Beats belonged with Apple," Iovine told AFP.

"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," Iovine said.

Lucian Grainge, chairman of Universal Music Group, praised Iovine.

“He founded, and for more than 20 years has led Interscope, a label that has consistently been in the forefront of the music business,” Grainge Said in a statement to Reuters. “We ... look forward to enhancing our partnerships with Apple and Beats for many years to come.”

The deal, which has been rumored for weeks, is subject to regulatory approvals and is expected to be completed later this year, Apple said.

Some information for this report provided by Reuters, AFP and AP.

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Comment Sorting
by: Mark from: Virginia
May 30, 2014 9:00 AM
For 50 years I have listened to music and have held onto the hard copy no matter what form it had taken; LP, tape and CD. I have a music collection that nearly fills the 300-disk cd player and I am loathe to change. I cannot see myself investing in digitally stored music no matter how appealing it is, or how mobile it is. I have two shelves filled with empty cd cases because the disks are in the cd player itself.

I may have grudgingly joined the 20th and 21st centuries in many areas, but I refuse to join the iTune crowd. Recently, files on my computer became corrupted and forced me to restore Windows to its factory settings (reformat and complete reinstall) and I lost a ton of files for applications I had garnered over the past few years (I am slow to embrace the Backup system in Windows). If that had included my digital music library....well, perish the thought, it would have been terrible.

While young folks are be-bopping around with iPads and iPods and the like, I will keep the dinosaur called a component stereo system sitting on my shelf.

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