GRACE NOTES

Apple’s Buyout of Beats for Billions: Is Music Still Alive?

Leslie Shapiro  |  May 12, 2014

Any second now, confirmation is expected on Apple’s buyout of Beats Music for a reported $3.2 billion. That’s billion with a “b”. There’s no doubt that Beats is a valuable commodity. They did for headphones what Nike’s Air Jordans did for sneakers: No one cares if they’re the best product, they just care if it’s got the right logo. Is this a smart business move for Apple? Frankly, I don’t give a damn.

Buyouts are nothing new to either company. Apple successfully parlayed their purchase of SoundJam into the beginnings of iTunes. Not as successful, they purchased Lala music and with the help of Lala’s brain trust, turned that into iTunes Match.

Beats has seen its share of corporate letterheads as well. Initially partnered with Monster until that contract expired (sorry, Monster) Beats then partnered with struggling phone manufacturer HTC. HTC purchased 50.1% shares in Beats for $300 million in 2011 which it sold back last year for a reported $500 million. A nice little profit, but I hate to think what those corporate beancounters are saying today. Most recently, Beats acquired MOG and turned it into Beats Music, a new subscription-based streaming music provider.

What goes on behind the scenes in corporate accounting offices is beyond me. What is apparent from this is that music is apparently alive and well. One could argue that Apple helped a failing music industry when it launched iTunes, but at the cost of fidelity. If the low bitrate of iTunes didn’t kill sound quality, the horrendous sound quality of the bundled earbuds supplied with iPods and iPhones put the nail in the coffin.

Now, no one is saying that the sound of Beats headphones is phenomenal. But, bombastic bass and all, they are significantly better than most earbuds. Their high-end headphones are surprisingly well-balanced. Some of the Beats portable speakers are better than others of similar size—again, not hi fi, but acceptable. Most important, however, is the new Beats Music service. It’s one of the best quality streaming services and it’s a rather interesting combination of the best features of Spotify and Pandora—you can pick what to listen to and then continue to hear suggested playlist options. At 320 kbps, it’s one of the highest bitrates around.

Apple has its hand in many different technologies. They could have bought a car company (Tesla?), a telecom service, a retailer, or pretty much anything they wanted—I’m sure there’s an app for that. To make their biggest purchase to date (they purchased Steve Jobs' Next for $400 million in 1996) a buyout of a music company means that there is hope, finally, for the future of the music industry. Boomy bass aside, what do you think about the news? Did Apple calculate this deal to lend some street cred to an aging iPhone generation? Or as a challenge to Google—instead of a computer in a pair of glasses, make wearable tech into a headphone? All I know is that Dr. Dre is going to be the richest rapper on the block. Do you think he has an iPhone 5?

COMMENTS
MrLarry's picture
Submitted by MrLarry on May 12, 2014 - 6:45pm

"no one is saying that the sound of Beats headphones is phenomenal. But, bombastic bass and all, they are significantly better than most earbuds"

This is true... But Apple couldn't care less about the headphones. Sure, they may look at them and pinch some ideas, but Apple never had much problem making - what they consider - great hardware. Beats headphones will be a thing of the past in 12-24 months.

On the flip side, Apple have been notoriously bad at making service based systems. All you have to do is google for .mac (pronounced Dot Mac), MobileMe and even iCloud and you'll see the bad press they got over those systems. People even complain about iTunes, although it is a big enough cash cow that they can afford to spend money to fix it.... And that is where Beats comes in.

As you said, Beats Music service is one of the best and has a lot of subscribers, something that iTunes Radio has so far failed to attract. Apple can either build something different but has all that historical bad press about Apple services attached to it, or they can buy a service that is already popular and even fashionable among the demographic they are trying to reach.

They aren't paying $3.2 billion for headphones. They are paying to get a good music service and to use that to erase their poor services record from our memories.

trynberg's picture
Submitted by trynberg on May 13, 2014 - 11:50pm

Beats Music a good service with a lot of subscribers? It's been a total flop with only 200,000 people signed up...

Macmaven's picture
Submitted by Macmaven on May 15, 2014 - 1:55pm

I can't believe that nobody can add 2+2+2.
#1 You want to sell High Resolution iTune songs for $1.99 each. Costs you NOTHING because you have required songs being sold on iTunes to be provided on this format to be downconverted to their current resolution.

#2 You need better quality headphones to appreciate the difference (no ear buds for me). High perceived quality and great profit margin. BONUS - A high quality 320mb streaming music service to send music buyers to the iTunes Store.

#3 the most important reason and no one sees it
You need MUCH more memory to store these songs on your iPhone and iPad (can't stream these bad boys). This will make people buy 64/128/256 GB units which not only are more expensive but, here's the kicker, have a much higher profit margin.

#4 the Smoking Gun
iOS 8 will have the ability to decode these files natively, no fudged app for this.

The real money is higher memory requirements in iPhones and the need to upgrade iPads which users have been slow to do.

More money for Apple, Dre, & Iovine. Better quality sound for everyone as we transition out of MP3.

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