Why is Apple buying Beats? Opinion #31247
(This post has nothing to do with medicine.)
I’m an Apple customer for many years. I’m also one of those fans who happily watches all the keynote presentations and follows the popular Apple news and rumour websites.
So like many, I was perplexed by the news that it seems Apple will be buying Beats for $3.2 billion in the next week or so. Why would they do that? Beats headphones are divisive in that you either think they are (a) a worthy expense which marks you out as a discerning audiophile and fashionista or (b) an idiot tax on people who put style over substance. Interestingly a lot of people also think (b) applies to Apple fanboys like me, and yet somehow it seems from the online discourse that Apple fans and Beats fans are mutually exclusive.
So why would Apple buy Beats?
1. Headphones? No. It’s not for the headphones or for their audio expertise.
2. Beats Music? Beats launched a US-only music streaming service a few months ago. It does not have huge numbers of subscribers, but there are some innovative features in its app. So this is probably partially the reason. Apple need to sort out the iTunes Radio/iTunes in the Cloud pseudo-streaming that it has.
3. Something else? The clue is in this story from MacRumors. Jimmy Iovine, co-founder of Beats, has another day job that we shouldn’t forget about: he’s the Chairman of Interscope-Geffen-A&M records, a division of the Vivendi Universal Music Group. A deal with Apple would see him relinquish this role for a senior position at Apple. Which means…
Apple want to set up a record label.
Not any old record label, not in the traditional sense of the words. Rather, they want to remain in the content provision and delivery business, but also generate new content. Netflix, Amazon, Hulu have made the leap from content-providers to content-creators delivering original TV shows through their platforms. None of the music-streaming services have attempted this.
Before Christmas, Apple tried to with Beyoncé’s surprise album: a small window of exclusive rights, control of the album’s release. However, Apple didn’t appear to have enough direct control of the process as they would have liked. If Apple had a “record label” that could fund and generate the music directly, it would cut out a lot of the problems.
Apple have the structure to make it happen: 800,000,000 customers and their credit card numbers, a delivery system with software and hardware to make it seamless. With Jimmy Iovine and Dr Dre they have two people who have run record labels and have a track record in dealing with artists.
20 years ago, Sony were selling all the CDs and all the CD players. 10 years ago, Apple were selling all the MP3s and all the MP3 players. Apple don’t want to go the way of Sony.
Finally, consider this:
In 2013, the global music business generated $16.5 billion. Apple have $150 billion in cash in the bank. Think about that. Apple could have paid for every CD, download, stream, LP and cassette bought globally in 2013 and still have $133.5 billion left.