Dr. Dre just made himself a fortune, but made Apple a profit margin monster.
The Daily Mail is reporting that Beats headphones, the headset company started by Dr. Dre and Jimmy Iovine that was just acquired by Apple for $2.6 billion (yes, that’s billion with a b), has sold Apple a cash cow. Experts in the headphone industry are telling the New York Times that it costs about 14 dollars to manufacture a set of Beats headphones. The price range for a pair of Beats headphones start at $199.99, and go up to $699.99.
Per unit, the profit margin for each unit using these numbers ranges from 93 percent to 98 percent.
Beats was created in 2008, and reached a value of $3.2 billion soon after. Now that Apple has purchased the Beats company and line, Dr. Dre and Iovine are Apple employees. As well as the $2.6 billion Apple paid for Beats, there was also $400 million in Apple stock as part of the exchange.
Apple became interested in Beats after Dr. Dre’s venture had captured 57 percent of what was considered the “premium headphone market.” In 2014, Beats controlled over 27 percent of the $1.8 billion premium headphone market.
Time Magazine recently tested the quality of 18 of the top headphones on the market. Beats was selected as the second-to-worst brand in terms of sound quality reproduction. Shure, Grado, and Klipsch ranked as the top three in that test.
This is just the latest in the rise of Dr. Dre, aka Andre Romelle Young. Dre, who just turned 50 in February, began in the music business, breaking through with the rap group N.W.A., consisting of himself, Eazy-E, Ice Cube, MC Ren, and DJ Yella. The group popularized the west coast gangsta rap, utilizing profanity and harsh images to reflect the violence they experienced in the streets. In 1992, Dr. Dre left to pursue his solo career, releasing the album The Chronic. The single “Let Me Ride” would earn him a Grammy, and help to popularize Death Row Records.
In 1996, Dr. Dre left Death Row Records to start his own record label, Aftermath Entertainment. His record company was able to sign Eminem in 1998 and 50 Cent in 2002. He has earned six more Grammys, including producer of the year. Dre has also branched out into acting and was in such movies as Set It Off, The Wash, and Training Day.
In 2008, Dr. Dre collaborated with Interscope Geffen A&M Records chairman Jimmy Iovine to begin and create Beats headphones and earphones. Beats soon branched into speakers and bluetooth units, then into audio software technology and streaming music subscription services. Beats became popular through product placement and branding deals with accessible celebrities from Iovine’s own professional network.
[Image courtesy of Hot New Hip Hop]