WHY WOULD APPLE BUY BEATS?
the Developing Story of the Year
Business Insider has an illuminating take on Iovine’s rumored role at Apple, which would theoretically have him directly advising CEO Tim Cook on creative matters. “Based on a really insightful interview Iovine had last year with AllThingsD's Walt Mossberg, it's starting to sound more and more like Apple isn't necessarily investing in a bunch of poorly reviewed, overpriced headphones and an untested streaming music service, but the vision Iovine has for the future of music as a whole. ‘iTunes was great, but it needs to step forward now,’ Iovine told Mossberg. ‘Most technology companies are culturally inept. They're never going to get curation right.’ That's the kind of forward-thinking attitude Apple is likely going after. $3.2 billion is a high price to pay for what essentially could be an acqui-hire. But keep in mind that it's a miniscule price for Apple, which has over $150 billion in cash just sitting in the bank.”
So maybe it’s all about “curation.” Did Jimmy sell his “cultural” expertise as a gorgeous invisible cloak to Emperor Cook, or is there bona fide value to Apple in Iovine's passionately expressed assertion that listeners need to relearn how to listen?
Presumably, Iovine would be filthy rich at that point. So would Dr. Dre, who, according to The Guardian, is on the verge of becoming the wealthiest man in hip-hop, a distinction that now belongs to The title currently belongs to P. Diddy, who is reportedly worth $700m. AppleInsider noted that Dre seemingly confirmed the deal late Thursday when Tyrese posted a video of the two of them celebrating the "first billionaire in hip-hop."
UMG is potentially smelling like a rose as well. Initial reports suggest that, given the company's investment and doing the math based on the reported purchase price, it would stand to realize about $400m in the deal. Sweet.
And the WSJ notes that Carlyle Group will be an even bigger winner if the deal goes through. The private-equity firm paid about $500m for just under 50% of Beats Electronics, meaning Carlyle’s take would be upward of $1.5 billion, or about $1 billion profit. Not bad for a seven-month-old investment.
Interestingly, the Apple-Beats pairing has been largely met with scorn, confusion and even disbelief from tech industry watchers, AppleInsider notes. Analyst Gene Munster of Piper Jaffray said he believes an Apple acquisition of Beats would be a "bad idea… We are struggling to see the rationale behind this move. Beats would of course bring a world class brand in music to Apple, but Apple already has a world-class brand and has never acquired a brand for a brand's sake (i.e., there are no non-Apple sub-brands under the company umbrella)." Munster went on to note that Apple typically acquires companies for their technology, but he's not aware of any intellectual property within Beats that would be of interest to Apple.
Reaction: Duh. These so-called analysts are missing the obvious. Isn’t it apparent that this whole thing is really about Apple getting competitive in the streaming sector via Beats Music?
But Peter Kafka of Re/code asserts that the licenses owned by Beats won't transfer after a sale to Apple. As to whether music labels who have licensed deals with Beats would want to create new deals with Apple, Kafka said he's heard "split opinions."
CNET points out that Beats Music debuted with a powerful billing and marketing partnership with AT&T, and it has reportedly been growing quickly. Though the company has yet to disclose hard and fast subscriber numbers, industry estimates peg the total at about 200k.
Variety’s Chris Morris has started a thread on Facebook registering his disgust: “Not among the answers to the question, ‘What would Steve Jobs do?’: purchase Beats Electronics for three times its market value… All this prospective deal denotes is the official end of forward-looking R&D at a once-visionary tech company now forced to grasp at straws… This is one of the worst deals in history.”
More to come—lots more.
