Apple Harnesses The Power of Music, Acquires Beats at $3 Billion
Apple Harnesses The Power of Music, Acquires Beats at $3 Billion
Apple has just announced that it will be acquiring Beats Electronics which is a headphone and music streaming company for around $3 billion. Apple hopes to strike a chord with music lovers by purchasing this specialist firm manned by rapper Dr. Dre and recording expert Jimmy Iovine.
The announcement was made by Apple Inc following 3 weeks of negotiations and it is clearly the most expensive acquisition this corporate group has made in its 38 year old history. This is move designed to make waves in the music industry and beat out the threat being posed to its iTunes store.
The price of the acquisition is around $2.6 billion in cash and approximately $400 million in Apple stock. This will vest for a period of time that has not been specified. The deal will close before September ends. Beats earned over $1.1 billion in revenue last year. Once the new fiscal commences in October, Beats will be adding to the profits of Apple, according to Apple CEO Tim Cook.
Cook discussed how the natural progression from a friendship to a stable union took place over the years. The two companies had been interacting for over a decade now. Cook has discussed how the unique synergy and genius of Dr. Dre and Iovine will transform Apple.
Iovine and Dre will now be key executives in Apple Inc's music divisions. The music streaming service offered by Beats is what clinched the deal, accordign to media reports. Music streaming services such as Pandora have been taking revenue away from iTunes for sometime now. The immense popularity of Swedish music streaming service Spotify is another massive success story. This has caused a $2.8 billion fall in profits from US sales of downloaded songs. On the other hand, the music streaming revenue for the same period last year has reached 39% to $1.4 billion, as per figures provided byt he US recording industry association.
Apple has broken into the streaming industry with the launch of iTunes radio last year but it did not break records. With Beats in its grasp, Apple now makes a move towards the music streaming industry. Apple is now looking to cash in on a hip-hop artist and an entrepreneur along with a veteran record industry executive. Dr. Dre, self professed to be the “first billionaire in hip hop” along with record expert Jimmy Iovine will add energy, vibrancy and dynamism to Apple's music division.
Apple iTunes has been facing stiff competition from the music streaming industry leading to it becoming more of a venue for browsing around rather than making a purchase. Only 1 to 2 percent of customers hit the download/buy button while listening to iTunes radio, as per statistics provided by Billboard. Subscription based music is catching on fast amoung consumers. Downloading music for a fee has become an unpopular chioce among music lovers if on goes by the numbers. Music revenues fell by 2% in 2013 as far as downloads are concerned whereas subscription based music revenues increased by over 50% for the same time.
Apple without Steve Jobs is now looking to recover from its losses and whether Beats will be sweet music for company profits is a development analysts are on the look out for. Apple looks to innovate with Dre and Irvine. May be this is just what the doctor ordered. At any rate, it counters the charges of Einhorn and Icahn regarding the innovation Apple needs. With music to soothe the troubled waters, Apple Inc could be making waves in the music industry soon.
