Earlier yesterday, TechCrunch released a report in which reporter John Biggs wrote, citing “a well-placed source”, that Apple’s acquisition of Beats Electronics (earlier reported in an exclusive by the Financial Times, who also priced the deal at a steep $3.2 billion) is 70% likely to go through – and the main reason the deal is happening is because Apple wants both Dr. Dre and Jimmy Iovine’s influence within the music industry and that they’ve got, according to the TechCrunch source, “fashion and culture completely locked up.”
However, sources I spoke to within Apple disputes that story.
These two independent sources (each with a 6 year+ experience working in the company) tell me that the main reason why Apple is acquiring Beats Electronics is not because they need or want Dre and Iovine’s experiences (more on that later), but rather, because they’re jealous of how far Beats Electronics has come in the music industry.
Apple is, in short, buying Beats Electronics to kill off the closest competition while still slightly benefitting themselves.
Beats by Dre, ever since its inception, has seen nothing but strong and steady growth. In a report by Fast Company, Beats Electronics’ revenue in 2011 was only $350 million. By 2013, just a mere two years later, their revenues have skyrocketed four times, up to $1.4 billion.
And while Beats Electronics is growing rapidly, Apple’s music business has, at best, remained stagnant – or at worst, declined.
Over the last few years, Apple’s music business has declined by double-digits in terms of music sales, while Beats Electronics continued their grab for more market share with the purchase of music steaming service MOG and their extensive partnerships with multiple corporations across the board.
Apple was worried.
And they’ve also got lots of cash on hand that they don’t really see a need for.
So why not just buy the competition up?
According to the sources, once the acquisition is completed (“It will be weird now if Apple doesn’t buy Beats,” said a source), the Beats Electronics brand (which also includes the Beats by Dr. Dre brand) is gone. It will be completely dissolved and any technology previously developed by Beats Electronics will either be infused with a current project Apple is working on (unlikely) or just be completely scrapped (more likely).
The sources made it clear that with the purchase of Beats Electronics, there’s absolutely no chance Apple will let the brand live on for another day.
They were competition, and now they’re going to get killed.
For those who are wildly guessing if Apple will implement Beats Audio in the iPhone 6, the answer then, is a clear no.
But what Beats Electronics have done isn’t even the most impressive in the industry. Why didn’t Apple just buy Spotify, Rdio, or something along those lines? Don’t they have more market share than Beats Music?
Yes they do – but here’s where Dre and Iovine comes in. According to the source, Apple thought that the acquihiring of both Iovine and Dre was just a bonus to killing off the competition – an icing on the cake, if you will.
Both Dre and Iovine will fit right into the Apple culture: they’re both experienced marketers. Beats by Dr. Dre headphones aren’t the best in its class. Specs-wise, neither are the iPhones. But it still sells like hotcakes frankly because of the image these products carry with them.
In that sense, the two music-moguls will have no problem fitting in and will, perhaps, aid Apple in negotiating deals with prominent musicians. But don’t expect the both of them to have the massive roles within Apple like many in the media is painting them to be.
Their roles will be, according to the sources, “strictly advisory.”
The sources also cited the fact that the deal almost went down the drain a couple times, which in turn soured the relations between Dre/Iovine and the Apple executive team (an example of this was when the Dre video was leaked… according to the sources who heard the story through the grapevines, Cook was furious enough to call Dre, demanding an explanation).
Confirming Billboard’s earlier report, the deal is set to be finalized next week.