A costly $3.2 billion / €2.3 billion deal that will be announced formally as early as this week, the Apple-Beats acquisition was not so far-fetched as some Wall Street analysts would have you believe. In fact, as some brokers are still scratching their heads in disbelief, experts in the music industry are not at all surprised to hear the news that Apple has engulfed the music company.
Bloomberg is running a piece citing industry veterans with their own takes on the news that Apple shelled out several billion dollars to acquire Beats Electronics, a company co-founded by Dr. Dre and Jimmy Iovine that sells high-quality headphones and owns a growing music streaming service.
“These aren’t strange bedfellows at all,” said Peter Csathy, chief executive officer of entertainment law firm Manatt Digital Media Ventures. “Steve Jobs really drove the relationship with the music industry. The executives at Apple and Beats know each other very well, and there’s a comfort level there.”
Apple reportedly “proposed” when its executives caught a glimpse of Beats Music. Unlike other music streaming services, Beats is actually able to rapidly convert users into paying subscribers, according to a person with knowledge of the talks.
The headphones (and the engineering talent behind the hardware) were apparently the second biggest reason behind the acquisition, but an important one nonetheless, as Apple reportedly wants to improve its own offerings, perhaps even make a new set of headphones specifically crafted for iPhones, iPods, and iPads.
“Beats is also well known for its high-end headphones business, which is profitable, and Apple plans to work with the company to improve the quality of design in future versions,” this person allegedly told the news agency.
More confirmation that the deal is going down comes from the fact that both Iovine and Dre have been sighted around Apple’s Cupertino, California campus. Iovine is expected to become an executive within the Apple organization after the acquisition is formally announced. He will be reporting to Tim cook, sources say.
Iovine is one of the earliest iTunes Store fans, having received a personal demo from Steve Jobs himself in 2003, just before the service debuted.
Jason Hirschhorn, the former president of MySpace who now runs The ReDEF Group, said Iovine was one of “Apple’s first friends in the music business.” For his part, Iovine supported the iTunes Store’s birth by helping recruit music labels and artists, and even by featuring iPod music players in videos by the likes of 50 Cent and Eminem.
Quoted from a 2003 interview, Iovine said, “I have a background as a recording engineer, so I think I understand what kids want, and when I saw the simplicity of the iTunes system, I said, wow, this is going to work. This is what they want, no muss, no fuss.” On Apple’s headphones, he was then quoted as saying, “Apple got everything right except that ear bud.”