Apple wanted to develop an on-demand music streaming service, but for $3.2 billion it gets a ready made service with a profitable hardware unit.
Over the past week it has been reported countless times that Apple is in final stages of acquisistion talks with Beats. It is expected to pay as much as $3.2 billion for the company was founded by music industry icons Jimmy Iovine and Dr. Dre, and they’re both believed to get jobs at Apple after the acquisition.
Beats already has a profitable hardware unit. It makes some of the most popular high-end headphones and audio products. Free-flowing endorsements from music stars and athletes don’t hurt either given both co-founders’ relationships with such personalities. A few months back the company unveiled Beats Music, an on-demand music streaming service that lets subscribers access more than 20 million songs for $10 per month. Moreover the Beats Music app has an excellent recommendations algorithm which sets its apart from the pack.
According to Bloomberg, Beats Music is the main reason why Apple became interested in this company. Apparently the fruit company’s executives were impressed with the rate at which Beats Music is “converting users into paying subscribers.” It also doesn’t hurt that this music streaming service is cross-platform with apps being available for Android and Windows Phone apart from iOS. Apple doesn’t cater to rival platforms with its native services, specifically iTunes, but an acquisition of Beats means it gets to keep those subscribers as well and welcome any subsequent users into the fold as well.
It has been rumored multiple times that Apple wants to develop an on-demand music streaming service. The company has reportedly been in talks with record labels for months but something has been holding up deals with major labels. It needs to have those licensing agreements before such a service can be launched. Acquiring a ready made service that already has licensing agreements with almost all major and independent labels makes it much easier for Apple to take its music streaming ambitions forward.
A source claims that since Beats hardware unit is profitable Apple won’t kill it after the acquisition. Instead it will work with the company, which will presumably exist as an independent brand, to improve design on its future products. It might take a while for Apple to recover its $3.2 billion investment in Beats but in the long run it might certainly prove to be a good bet.
Apple is expected to formally announce the acquisition of Beats later this week.