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Apple has confirmed to the The New York Times that it will purchase Beats Electronics for $3 billion.
Rumors had begun to swirl about an acquisition in early May when the Financial Times reported the two empires were in talks to align forces. The official deal will be broken down into a $2.6 billion cash payment and $400 million of the tech company's stock.
Before the deal was formally announced, analysts balked at the price tag, saying that Apple had better options when it came to acquiring existing streaming services—or it could just build its own service. That said, there are upsides that could be gleaned from potential applications in the wearable tech industry, considering that Beats premium headphones have become a youth fashion staple. However, many said it still wasn't worth the hefty cost.
According to the Times, what piqued the Cupertino, Calif.-based company's interest the most was the music expansion opportunities that Beats Music could offer. While Apple will continue its iTunes store and streaming radio service, it will add the Beats streaming music service and its premium headphones.
Gian LaVecchia, North American managing partner of digital content marketing at media agency MEC, explained that buying Beats Electronics jump-starts Apple's foray into streaming music services, a growing industry. It's also a sign that iTunes Radio hasn't exactly caught on with the masses, he added. "I do see it as a fairly aggressive move to outpace the competition, like Spotify," he said.
In addition, experts cited the addition of Beats executives Jimmy Iovine, who co-founded Interscope Records, and famed rap producer Dr. Dre as the biggest bonuses of the deal. Both men will report to Apple's svp of Internet software and services Eddy Cue.
Iovine and Dre bring the know-how and understanding on how to market music to an audience that demands cool, said Jon Keidan, co-founder of digital men's publication InsideHook and a former music manager. Iovine is "the most competent music insider you can get," Keidan added.
The streaming music space is full of complicated deals with musicians and labels that demand payment for their services. So, having someone like Iovine who knows the ins and outs of the industry is key, said Ryan Ford, evp and chief creative officer at the Cashmere Agency and former executive editor of The Source magazine.
Ford also noted that while Apple has had success with iTunes, it's primarily a tech company. Adding Iovine and Dre to the roster gives them legitimacy in the music space, as both titans have been able to find success from both the creative and publishing sides. With younger generations moving to streaming music as their main source instead of buying purchased tracks that clog up space on devices, Apple can now get on track with younger generations.
"That's something you can't really buy into, how to really impact these young people in a really authentic way. Apple has done that for 10-plus years, but this is about the next 10 years," Ford said.
This isn't the first time Apple has acquired a music service. In late 2009, the company bought online music store Lala for about $17 million. The online portal let users share customized digital playlists that played streaming music.
LaVecchia said with all positives combined, the Beats deal could be considered a great deal as it "allows Apple to buy a lifestyle brand."
"To be totally honest it's probably a bargain if the Beats platform evolves past what it is today," he said.
