Light Reading

Apple Buying Beats for $3.2B: Dr. Dre & Tyrese

Sarah Thomas
5/9/2014
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Apple is reportedly ready to spend $3.2 billion to buy Beats, AT&T's streaming music partner, according to several sources, including Dr. Dre himself.

The owner of Beats hinted at the acquisition in a "video selfie" with the actor Tyrese posted Friday morning. Dr. Dre said he was set to become the "first billionaire in hip hop." And Tyrese posted the clip on Facebook (since removed) with the caption: "Dr Dre ON THE night his deal went public that he did with Apple 3.2 BILLION!!!!"

Forbes pointed out that the deal would actually net him around $800 million but still would make him hip-hop's richest man.

Hip-hop hierarchy aside, the deal is notable because, for one thing, it will be one of the largest acquisitions in Apple Inc. (Nasdaq: AAPL)'s history, showing what a big bet it is placing on streaming music. It's also potentially good news for AT&T Inc. (NYSE: T), which revealed just yesterday that it's considering shutting down Cricket's Muve Music, likely in favor of its partner's service. (See Apple iTunes Radio Brings the Beat to LTE and AT&T to Turn Down Muve's Music?)

Jefferies analyst Peter Misek also suggests that the deal could help Apple out in the emerging category of wearables. He writes in a research note:

Apple would also gain what we believe is an amazing creative team for the design and creation of hardware, primarily accessories that we believe could be very valuable in the context of the wearables market. We believe such a team could help the development of a future iWatch and other wearable products from Apple. Those two assets and capabilities alone may be worth the purchase price.

Misek also wrote that this could jumpstart competition in the music business with a response from Amazon.com Inc. (Nasdaq: AMZN) and Google (Nasdaq: GOOG). For example, he suggests that Spotify could be an attractive acquisition target for Amazon.

All this activity could really kickstart a once-stagnant mobile music market. But it remains to be seen if that's a positive or negative thing for wireless operators, which might gain either partners or competitors for streaming services.

— Sarah Reedy, Senior Editor, Light Reading

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Mitch Wagner
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Mitch Wagner,
User Rank: Lightning
5/17/2014 | 4:43:46 PM
Re: Confusing
iPhones and iPads are amazingly rugged gadgets. I've dropped 'em, the dog licks them, the cat thinks they're toys, and they just keep going. 

Some people put theirs in cases to keep them looking new. I like the nicks they accumulate over time. They're like a good, worn leather jacket. 

 
Mitch Wagner
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Mitch Wagner,
User Rank: Lightning
5/14/2014 | 3:43:27 PM
Re: Confusing
Appearance of quality is more important than actual quality. Skeptics would say that's been Apple's strategy from the beginning. 

And Apple has always been as much about fashion as engineering. Apple would use the words "style" or "design" instead of "fashion."

Good point regarding the Burberry executive. That combined with the Beats acquisition (has that been confirmed yet?) suggests Apple is going after market segments: Doubling down on a traditional segment of affluent adults, while also pursuing a younger, more hip demographic. 

The fact that I used the word "hip" demonstrates I am not. 
mhhf1ve
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mhhf1ve,
User Rank: Light Sabre
5/14/2014 | 3:15:35 PM
Re: Confusing
I'm not so sure that the price difference between the 5C and 5S is the big problem. I think the 5C just *looks* bad and cheap compared to the 5S -- and so people aren't willing to compromise their fashion and also get a slightly less functional iPhone. Beats is genius in a way because the electronic guts of their products are objectively inferior -- but somehow they've convinced a lot of people that their products are worth more than the sum cost of the components. Apple could do well if it can pull this off with other electronic wearables it might have in the pipeline. I think it's also interesting that Apple has a new exec from Burberry -- so it's definitely thinking about how to market it's products as fashion items instead of utility gadgets.
kq4ym
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kq4ym,
User Rank: Light Sabre
5/14/2014 | 12:31:11 PM
Re: Confusing
It's just amazing to me how the "youth" market is growing so large that Apple wants to (and and afford) to buy Beats for $3.2B. All of my friends love all kinds of music they say, adding "except rap" so obvioiusly it's not by peers spending anything on Apple's new toys. But, if you've got the money and want to move your products to a younger crowd, that's probably the way to head.
Mitch Wagner
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Mitch Wagner,
User Rank: Lightning
5/13/2014 | 1:34:33 PM
Re: Confusing
mhhf1ve - I wonder whether the iPhone 5C suffers simply from being insufficiently less expensive than the 5S. The 5C starts at $99 subsidized, the 5S at $199. Considering the consumer is also paying monthly phone charges, the consumer may decide that buying the underpowered phone for not that much less is false economy. 

Apple may be buying Beats not for its design sense in general, but for its appeal to a younger demographic than Apple's existing customer base. 
mhhf1ve
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mhhf1ve,
User Rank: Light Sabre
5/12/2014 | 7:20:02 PM
Re: Confusing
Some folks speculate that apple isnt so focused on the headphones as much as Beats' "fashion" sense in wearables. I'm not sure I buy that reasoning, though, because it's tough to see how oversized watches or fitbit-like devices couldn't be done by Apple's existing designers. But I guess I can understand that Apple's designers are optimising for how the internal mechanisms fit into a box (usually in a minimalistic way), not how to necessarily make a really fashionable accessory. I suppose this is Apple's first step away from its usual minimalistic design. I wonder if Beats had designed the iPhone 5C -- would it be more popular now?
Mitch Wagner
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Mitch Wagner,
User Rank: Lightning
5/12/2014 | 5:23:38 PM
Re: Confusing
Apple may well keep the Beats name around. It'd be the first time in a long time that Apple has used another brand. The last times were Filemaker and Claris, and that's ancient. 

As I think about it, I think Apple did this for several reasons:

- Short-term market share and profits. 

- Earphones are an integral part of the smartphone experience. It's like a keyboard or a mouse for a notebook or desktop. 

- Buying marketing smarts for a younger generation. 

- Possibly buying connections to the music industry. 

- Buying a streaming service. Even if the market share is small, the underlying service might be sound. Siri was a niche application when Apple bought it. 
mendyk
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mendyk,
User Rank: Light Sabre
5/12/2014 | 4:03:14 PM
Re: Apple Audio Connectors
If Apple really wants to lead in digital audio innovation, it would be investing in projects like Neil Young's Pono.
wanlord
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wanlord,
User Rank: Light Sabre
5/12/2014 | 3:54:39 PM
Apple Audio Connectors
I can "hear" it now, pun intended. Proprietary Apple High Fi Digital Audio connector interfaces between Apple devices and Apple Beats audio to provide the "quality patented Apple audio experience"...
mendyk
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mendyk,
User Rank: Light Sabre
5/12/2014 | 3:42:15 PM
Re: Sorry, HTC
The bigger issue with sound quality is the source rather than the device. Compressed digital files are not going to yield very high fidelity. We've gotten used to digital and are willing to accept lesser quality as a trade-off for convenience, ubiquity, portability, etc.
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