Apple announced today it will buy Beats Electronics for $US3 billion.
News of the deal broke nearly three weeks ago, but was reportedly delayed. The original price was said to be $US3.2 billion.
Beats co-founders Jimmy Iovine and Dr. Dre will join Apple. It’s unclear what their responsibilities will be, but their titles will simply be “Jimmy and Dre,” Iovine told the Wall Street Journal.
The deal is for $US2.6 billion up front and another $US400 million that will vest over time, Apple said in a statement. This is Apple’s largest acquisition ever. It’s expected to close by the end of the fiscal year 2014.
With the purchase, Apple will get Beats’ audio accessories business, which includes a line of pricey headphones. Apple will continue selling Beats products under the Beats brand. Beats also has a streaming music service similar to Spotify called Beats Music, which will now be part of Apple.
Beats Music tries to set itself apart because of its recommendation engine that can curate playlists based on what you’re doing. For example, you can tell Beats Music you’re at the gym, and you’ll get tunes that fit.
Beats Music CEO Ian Rogers will report to Eddy Cue, the VP at Apple in charge of iTunes. The streaming music service will also run separately from iTunes for now.
Beats Music is tiny compared to Spotify though. The service launched in January and reportedly only has about 200,000 users. Meanwhile, Spotify recently announced it has 10 million paying subscribers.
Iovine will work at Apple full time. Dr. Dre told the Wall Street Journal that he’ll keep producing music, but work at Apple whenever he’s needed there.
Beats Electronics is a private company, so we don’t know how much revenue the business generates. However, the headphones are very popular and are likely sold at high margins.
Ever since the news of the news originally broke three weeks ago, tech pundits have been trying to figure out why Apple is buying Beats. Now we finally have an answer. In an interview with The Wall Street Journal, Cook emphasized that Apple will gain two great executives in Iovine and Dr. Dre. He also thinks Beats Music has a lot of potential.
“We think these guys have a very rare talent. We love the subscription service that they built. We think it’s the first one that really got it right,” he told WSJ.
In an internal memo to Apple employees obtained by 9to5Mac, Cook elaborated:
Both Apple and Beats believe that a great music service requires a strong editorial and curation team, and we will continue to expand what we do in those areas. The addition of Beats will make our incredible iTunes lineup even better, extending the emotional connection our customers have with music.
Here’s the full press release:
Apple today announced it has agreed to acquire the critically acclaimed subscription streaming music service Beats Music, and Beats Electronics, which makes the popular Beats headphones, speakers and audio software. As part of the acquisition, Beats co-founders Jimmy Iovine and Dr. Dre will join Apple. Apple is acquiring the two companies for a total of $US3 billion, consisting of a purchase price of approximately $US2.6 billion and approximately $US400 million that will vest over time.
“Music is such an important part of all of our lives and holds a special place within our hearts at Apple,” said Tim Cook, Apple’s CEO. “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.”
“I’ve always known in my heart that Beats belonged with Apple,” said Jimmy Iovine. “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 has been at the forefront of innovation in the music industry for decades, and he has been an instrumental partner for Apple and iTunes® for more than a decade. He has produced or collaborated with some of the most successful artists in the history of the iTunes Store®, helping make it the world’s number one music retailer. Iovine and Dr. Dre are sound pioneers, artists and entrepreneurs.
Beats Electronics has brought the energy, emotion and excitement of playback in the recording studio back to the listening experience and has introduced an entirely new generation to premium sound entertainment. Beats Music was developed by a team of people who have each spent their entire career in music and provides music fans with an incredible curated listening experience.
“Music is such an important part of Apple’s DNA and always will be,” said Eddy Cue, Apple’s senior vice president of Internet Software and Services. “The addition of Beats will make our music lineup even better, from free streaming with iTunes Radio to a world-class subscription service in Beats, and of course buying music from the iTunes Store as customers have loved to do for years.”
In just five years since launch, the Beats “b” has become the brand of choice in the music and sports worlds, and is the market leader in the premium headphone market. Music superstars including Lady Gaga, Lil Wayne and Nicki Minaj have designed their own customised Beats headphones and speakers. Fashion designers and street artists such as Alexander Wang, Futura and Snarkitecture have collaborated on special limited products, while renowned athletes including LeBron James, Serena Williams and Neymar use Beats as a critical part of their training and game day process. Beats has quickly become part of pop culture in the US and with the acquisition the Beats product lineup will be offered in many more countries through the Apple Online Store, Apple’s retail stores and select Apple Authorised Resellers.
Subject to regulatory approvals, Apple expects the transaction to close in fiscal Q4.
Formally established in 2008 as the brainchild of legendary artist and producer Dr. Dre and Chairman of Interscope Geffen A&M Records Jimmy Iovine, Beats Electronics (Beats) comprises the Beats by Dr. Dre family of premium consumer headphones, earphones, and speakers as well as patented Beats Audio software technology and streaming music subscription service Beats Music. Through these offerings, Beats has effectively brought the energy, emotion and excitement of playback in the recording studio to the listening experience and has introduced an entirely new generation to the possibilities of premium sound entertainment.
Beats Music is a subscription streaming music service that focuses on providing a personalised music experience for each user through a unique blend of digital innovation and musical passion. Programmed by a trusted team of well-respected music experts with over 300 years of experience across all genres, Beats Music delivers the right music for any situation, any time, and any preference, personalised to your tastes. The result is an artist-friendly digital music service that does more than simply offer access to music, but one that establishes an emotional connection to it as well.
Apple designs Macs, the best personal computers in the world, along with OS X, iLife, iWork and professional software. Apple leads the digital music revolution with its iPods and iTunes online store. Apple has reinvented the mobile phone with its revolutionary iPhone and App Store, and is defining the future of mobile media and computing devices with iPad.
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