Apple's Acquisition of Beats Met with Skepticism, but Jimmy Iovine May Be Key

Since the Financial Times broke the news yesterday, numerous publications are now claiming Apple is in the final stages of acquiring Beats Electronics, a headphone company and streaming music service created by hip hop star Dr. Dre and music industry veteran Jimmy Iovine. The response to the news is mixed, with some experts offering compelling reasons for the deal and other pundits questioning Apple's rationale in pursuing what would be its biggest acquisition to date.

Iovine has strong ties to the music industry and a long history of working with Apple, having met with Steve Jobs to discuss a subscription music service in 2003 and more recently in talks with Apple's Tim Cook and Eddy Cue about the Beats Music service before it launched earlier this year. In a recent interview with The Wall Street Journal, Iovine credits Apple as his inspiration for the idea of the Beats brand.

"The idea of Beats...to be very frank, I got from Apple," he said, noting the "uniqueness of their blending of technology with popular culture."

If the acquisition proceeds, Iovine may join Apple as a "special adviser" to Tim Cook on creative matters. Iovine would bring to Apple his knowledge of the music business as evidenced in a AllThingsD interview from last year embedded below, and his insider influence that Wall Street Journal sources predict could be used to boost advertising on Apple's existing iTunes Radio.


Apple also would acquire Beats' successful consumer electronics business selling high-margin headphones and its newly launched music streaming service. Apple could bring the Beats hardware brand under the guidance of Jony Ive and use it to create new music product lines and add new channels to sell Apple's products, suggests Re/code. The Beats music service is likely a longer-term investment, allowing Apple to accelerate any plans to offer a streaming music service for its iTunes customers, which number in the hundreds of millions.

Analysts, however, are meeting the news of the high-priced acquisition with both contempt and confusion, noting that such an acquisition is out of character for the Cupertino company. One of the first to weigh in on the deal was Gene Munster, who called the acquisition a "bad idea" in an investor note.

We are struggling to see the rationale behind this move. Beats would of course bring a world class brand in music to Apple, but Apple already has a world class brand and has never acquired a brand for a brand's sake (i.e., there are no non-Apple sub-brands under the company umbrella). Separately, we are not aware of any intellectual property within Beats that would drive the acquisition justification beyond the brand.

Apple pundit John Gruber of Daring Fireball was equally skeptical of the deal, saying "I don’t get it."

On the surface, this doesn’t make any sense to me. I can’t see Apple keeping the “Beats” brand around for headphones. If Apple wanted to sell expensive high-end headphones, they don’t need to spend $3 billion. The Beats streaming service is interesting, but can’t Apple do that on its own, as an expansion of the iTunes Music Store and iTunes Radio?

According to the original Financial Times report, Apple's acquisition of Beats could be announced as soon as next week. Negotiations are still ongoing with some final details yet to be ironed out, allowing for the possibility that "talks could still fall apart."

Top Rated Comments

DrFu79 Avatar
99 months ago
If true, this literally has to be the worst acquisitition i can think of.

I hate Beats with a passion - all style, no substance.

As a longtime (20+Years) Apple user, I don't want this kind of philosophy (further?) taking over Apple - all about fashion and brand. Angela Ahrends, Beats etc.

Just make a damn good product and it sells itself by merit. Stop the fluff.

Kids get off my lawn. I know.
Score: 42 Votes (Like | Disagree)
0xyMoron Avatar
99 months ago
Really why should a company worth billions of dollars acquire another company before consulting MR forum posters first?
Score: 41 Votes (Like | Disagree)
touchipods Avatar
99 months ago
Wow, Steve Jobs would have never let this happen.
Score: 16 Votes (Like | Disagree)
mdridwan47 Avatar
99 months ago
Overpriced meets overpriced.
Score: 10 Votes (Like | Disagree)
nzalog Avatar
99 months ago
Google buys Nest and Apple buys Beats. What has the world come to? Embarrassed as an Apple user. :(
Score: 10 Votes (Like | Disagree)
bishopstory Avatar
99 months ago
Please guys stop the Friday morning CEOing!


Take a look at Jimmie Iovine's Wikipedia page, he is the Chairman and co-founder or Interscope Records (http://en.wikipedia.org/wiki/Interscope_Records) and Chairman of Interscope Geffen A & M (http://en.wikipedia.org/wiki/Interscope_Geffen_A%26M) which is part of the Universal Music Group (http://en.wikipedia.org/wiki/Universal_Music_Group) which is the largest music corporation in the World . Also scroll down to the complete Iovine discography.

Spot on dude.
Score: 9 Votes (Like | Disagree)

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