Apple Ready To Rock Out To Dr. Dre’s Beats Electronics: To The Tune Of $3.2 Billion

It’s an Apple world. We all just live in it.

Here at the official blog of Amplitude Digital, we’ve often kept a close eye on the past, present and future of Apple, which was recently ranked as the world’s most valuable brand by consulting company Interbrand.

And now, not to be outdone by the recent wave of high-profile, high-cost mergers and acquisitions by fellow technology and entertainment titan (and No. 52-ranked global brand) Facebook, Apple, Inc. stands poised to purchase the ubiquitous and increasingly loud Beats Electronics empire – to the tune of a deafening $3.2 billion. Or so say many recent reports.

Santa Monica-based Beats Electronics was founded in 2008 by powerful producer and rapper Dr. Dre (real name Andre Young) and long-time music industry executive Jimmy Iovine – who already held the powerful title of Interscope-Geffen-A&M Records Chairman (and co-founder of groundbreaking Interscope Records).

Since its inception, Beats Electronics has concentrated on producing audio products and equipment, primarily bass-heavy headphones and stylish speakers (including the popular Beats Pill). Often marketed and branded as Beats by Dr. Dre, Beats by Dre or simply Beats, the brand has largely achieved its popularity and growth on the strength of celebrity-, athlete– and musician-endorsed advertising and marketing endeavors. In 2012, market research company NPD Group reported that Beats owned a powerful 64% market share of headphones priced above $100, and in September of 2013, the company was valued at an even $1 billion.

From 2008 through 2012, Monster Cable manufactured all Beats products, but the company’s manufacturing operations were taken in-house in 2012. Beats has also grown on the strength of product placement and audio technology licensing deals, and expanded into the online music industry with its 2012 purchase of MOG – followed by the debut of its very own Beats Music service this year. 

The company was at one point majority-owned by Taiwan-based smartphone maker HTC, who reduced its ownership stake to 25% in 2012, then sold its remaining stake back in 2013. Washington, D.C.-based global asset management firm The Carlyle Group later replaced HTC as a minority shareholder alongside Dr. Dre and Iovine. According to some reports, that sale netted Beats around $500 million.

Now, the already incredibly wealthy duo of Dr. Dre and Iovine stand on the verge of rocking out to a raucous new cash infusion. According to some reports, Dr. Dre will personally secure around $480 million should the sale go down as rumored. 

Many other reports, including one in the venerable Wall Street Journal, posit that both Dr. Dre and Iovine will also receive senior positions within Cupertino, CA-based Apple, Inc. The Wall Street Journal report also said that Iovine will step away from his longstanding role at Interscope-Geffen-A&M Records as part of the impending deal.

Of course, the rumored deal has also generated all manner of analysis, commentary and criticism – and it hasn’t even actually happened yet. Or if it has, it hasn’t been officially announced – by anyone outside of Dr. Dre himself.

Apple’s lack of diversification of its “iProduct” line in recent years has generated scorn, derision, concern and even wailing and gnashing of teeth from many outside observers, and while new iPhone sales have been through the roof, iPad movement has crawled to a standstill in recent months. In fact, a recent quarterly earnings call revealed that iPad sales had failed to meet earnings expectations.

The acquisition of Beats would allow Apple to immediately add a ready-made, proven product line to its fold – and feature these popular products in its many retail stores. Whether or not Apple ends up dubbing them “iBeats,” the premium headphones, earphones and Bluetooth speakers proudly and loudly boasting the Beats brand already work with scores of devices, regardless of their OS. Sales to users of non-iOS devices won’t disappear, then, if Apple buys Beats and brilliantly showcases its shiny products within its bright, backlit, museum-like stores.

The merger could also help the fledgling iTunes Radio immensely. And immediately. Beats Music has also been slow to gain subscribers since its debut in January, but the on-demand music streaming service (similar to the popular Spotify in nature) does provide a powerful platform where music lovers can pay $10 a month to indulge in any of the millions of available tracks.

Beats Music also possesses something that iTunes Radio lacks (and Apple has long coveted) – valuable content licensing agreements needed to offer an on-demand service. As it is currently constructed, iTunes Radio doesn’t let listeners pick the tracks they want to hear. Beats Music, like Spotify, does. This is the main reason that, up until now, iTunes Radio (much like Pandora) has been consumed and marketed mostly as a free, ad-supported service. If Apple buys Beats, it immediately absorbs Beats Music as well. And it can immediately expand iTunes Radio into a pay-to-play, on-demand streaming service.

Several years ago, Steve Jobs-led Apple changed music forever – and doomed many long-time powers in the music industry – with the launch and subsequent success of the iPod and the iTunes marketplace. While a beefed-up and revamped iTunes Radio won’t make near the same seismic impact in an already altered musical landscape, it certainly would help quiet some of the criticisms of Apple being “just a phone company” in 2014.

If this deal does get consummated as reported – or even anywhere close to reports – only time will tell just what it means for Apple and its legions of loyal fans, users and consumers.

No matter how this Apple-Beats merger ends up unfolding, one thing is for sure:

Apple is investing a LOT of its capital and credibility in its Big Beats Bite.

It will be interesting to see and hear how it all plays out.

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