Apple announced potential plans to buy Beats by Dr. Dre about three weeks ago. As of Thursday, May 28, the deal is official. Apple will be acquiring Beats Electronics for a whopping $3 billion, reports MSN. About $400 million will be proffered in stock options, whereas the rest is slated to be handed over in good old cash.
What Does Apple Get?
This deal will hand both Beats Audio hardware (headphones, earphones, speakers, accessories) and the Beats Music radio streaming service to Apple. It will also hoist both Beats founder Dr. Dre and CEO Jimmy Iovine from mere businessmen to chief executives in Apple’s forever-burgeoning corporate empire.
Apple was originally looking to purchase the company from Dr. Dre for $3.2 billion. According to the New York Post, however, a report that revealed Beats Music commands an audience of only 110,000 (versus millions for Pandora, Spotify, etc.) inspired Apple executives to trim $200 million from the deal.
Why Did Apple Decide To Buy Beats?
Let us start with the fact that it is not customary for Apple to invest in already established businesses. Apple usually prefers to buy barely relevant startups like LuxVue Technology, Burstly, SnappyLabs, and Catch.com instead. Have you ever heard of any of them before? Probably not!
Second, many analysts speculate that Apple chose to buy Beats more-so for its streaming service than its headphones. Why?
According to Apple’s senior vice president of Internet software, Eddy Cue, “Music is dying in the way that we’ve known it.”
What he means is that music downloads and CD sales are falling, all while streaming is skyrocketing. And it just so happens that one of the companies capitalizing on this increased streaming is — wait for it — Beats by Dr. Dre!
Mind you, this isn’t to say that Apple isn’t also interested in Beats’ headphones. The NY Times reports that a single pair can net a profit of $436 ($450 retail price – $14 manufacturing costs). Plus, Beats has a brand presence that is recognized across the globe, due in large part to Dr. Dre’s infamous reputation as the first-ever mainstream gangster rapper.
What Happens Now?
The deal just occurred, so it may be a while before we see major repercussions (Beats headphones bundled with new iPhones?). However, one thing is for certain.
Dr. Dre is loving every moment of it:
“To be able to do something that could potentially change the world, I’m thrilled.”
To read the official press release, click here.