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Hold up: Apple's $3bn Beats buy could be one of its smartest moves

Opinion Don't be so quick to criticise
Thu May 29 2014, 12:38

carly-pageAPPLE ANNOUNCED on Wednesday that, as reports had all but confirmed the earlier in the month, it has bought Dr Dre's Beats Electronics for $3bn, a deal that will see it taking control of both the company's headphone and music streaming businesses.

Although the deal is done, nobody really knows why Apple decided to make Beats its biggest purchase to date. Despite this, people have been quick to criticise it, and I spent Wednesday evening scrolling through tweets and Facebook posts talking about this "huge, expensive mistake" that Apple has made.

I think that people need to stop being so quick to moan about the deal, as I have a sneaking suspicion that Apple knows the value of the buyout better than lots of the moaners sitting at home spending their evenings writing angry tweets.

Of course, I'm not saying that I know any better, but Apple spending $3bn on a company all about music has certainly got me, if nobody else, excited.

Apple was all about the music industry. In 2001, the company unveiled its first iPod, months after introducing iTunes, which - at the time, and still to this day - revolutionised the music industry. However, at the time, the launch of both the iPod and iTunes drew criticism similar to that following Wednesday's Beats announcement, and how wrong the critics proved to be. The iPod quickly became the world's best selling MP3 player, and iTunes - as well as revolutionising the music industry - soon became a cultural icon.

In recent years, however, Apple has struggled to maintain its lead in the music sales business. iPod sales in the second quarter of this year, for example, came in at just 2.8 million, down from the 5.6 million the firm shifted in the second quarter of 2013. iTunes revenue is shrinking too, seeing a 24 percent year on year decline.

Enter Beats. Sure, $3bn is a large amount to pay for a company, but it's a company that has a huge presence in the headphones market, has its own music streaming service that Tim Cook described on Wednesday "as the first to get it right" despite its low subscriber figures, and is owned by Dr Dre.

The deal also sees Dre, along with Jimmy Iovine, joining Apple, where - according to the Wall Street Journal - their titles will be simply "Jimmy" and "Dre", which is perhaps the coolest thing I've ever heard.

While some have argued that the Beats buyout brings the "cool" factor back to Apple, I think it does much, much more.

Firstly, it means that Apple can finally try to give Spotify a run for its money. Spotify announced last week that it now has 10 million paying subscribers, and there are unlikely many companies out there that have the money, expertise and resources to compete for that market, apart from Apple and Beats.

Dr Dre's Beats Music subscription service hasn't been hugely successful since its launch earlier this year, with the firm announcing on Wednesday that it has 250,000 subscribers - a far cry from Spotify's 10 million figure. However, a combination of Apple and Beats has the potential to resonate with consumers perhaps more than Spotify can. Apple said in June 2013 that it has 575 million iTunes accounts, so a streaming music service integrated within this has the potential to reach an enormous audience. Apple also has the cash to make such a service free, which Spotify, a company still classed as a startup, simply can't afford to do.

As well as Beats Music, Apple is also acquiring Beats' headphones and speakers division. At present, it's not entirely clear what the firm plans to do with it, although speculation is rife that it will bundle Beats headphones with its next generation iPhones and iPods. While personally I'm not a huge fan of Beats headphones, there are millions of people out there who are, who perhaps are not presently iDevice users.

Apple acquires Beats Electronics

Perhaps most importantly, in my opinion, the deal brings Dr Dre and Jimmy Iovine inhouse at Apple. It's unlikely that there are two people who combined know more about the music industry, and how to succeed in it, with Dre ranking as one of, if not the world's most successful music producers. Iovine, while perhaps not such a well-known name, has been heading up Interscope Records for the past 25 years, so he likely has some valuable expertise to bring to Apple - a company that is struggling to retain its dominance in the music market.

Tim Cook, at least, seems to agree. In an interview with Recode on Wednesday, he said, "What Beats brings to Apple are guys with very rare skills. People like this aren't born every day. They're very rare. They really get music deeply. So we get infusion in Apple of some great talent."

So, maybe - just maybe - we should see whether Apple's Beats acquisition pays off before we criticise it, because I think it's unlikely to flop. In the words of Dre Dre himself, just chill - 'til the Next Episode. µ

Carly Page is News Editor at The INQUIRER.

 

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