Apple Buys Beats Music & Electronics for $3 Billion
CUPERTINO, Calif. — Apple is striking a new chord with a $3 billion acquisition of Beats Electronics, a headphone and music streaming specialist that also brings the swagger of rapper Dr. Dre and recording impresario Jimmy Iovine.
Wednesday’s announcement comes nearly three weeks after deal negotiations were leaked to the media. It’s by far the most expensive acquisition in Apple’s 38-year history, a price that the company is paying to counter a threat posed to its iTunes store.
The price consists of $2.6 billion in cash and $400 million in Apple stock that will vest over an unspecified time period. The deal is expected to close before the end of September.
With $1.1 billion in revenue last year, Beats is already making money and will boost Apple’s earnings once the new fiscal year begins in October, Apple CEO Tim Cook said in an interview.
“We have known these guys forever,” Cook said of Iovine and Dre. “We’ve dated, we’ve gone steady, and now we are getting married. This relationship started a decade ago, so we know there is an incredible cultural fit. These two guys have a very rare set of skills. It’s like finding a particular grain of sand on the beach. It’s that rare.”
Iovine, 61, and Dre, 49, will both become key executives in Apple’s music divisions, though Cook said their roles haven’t been determined yet. Cook said Beats’ music streaming service was the main selling point in the deal.
The growing popularity of music streaming services such as Pandora and Spotify has been reducing sales of songs and albums, a business that iTunes has dominated for the past decade. U.S. sales of downloaded songs slipped 1 percent last year to $2.8 billion, while streaming music revenue surged 39 percent to $1.4 billion, according to the Recording Industry Association of America.
Although Apple broke into streaming with the launch of iTunes Radio last September, the service has not been as popular or as lucrative as the company expected, according to two people familiar with the matter. The people were not authorized to speak publicly about the matter and spoke on condition of anonymity.
Apple is counting on the Beats acquisition to boost its cachet with teenagers and younger adults while trying to remain a leader in digital music — an industry that looks much different from when Apple reshaped the scene with the 2001 debut of the iPod.
“Apple suddenly has regained its cool,” said Sony Music CEO Doug Morris, who was one of the first recording executives to embrace iTunes at Iovine’s urging more than a decade ago.