Published On: Mon, May 12th, 2014

Mystery Of The Week : Are Jimmy Iovine & Dr. Dre Selling Beats To Apple For $3.2 Billion?

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Word is out from just about everyone – everyone except Apple that is – that the company is buying music and headphone company Beats for as much as US$3.2 billion.

Beats was founded by the famous Hip-hop artist Dr. Dre and by Brooklyn born music producer Jimmy Iovine.

Beats is actually in two completely separate businesses. The first is a hugely successful line of high-end brand name head-phones, Beats Electronics, in other words high-margin hardware which everyone thinks is very cool, just like Apple in the rest of its business.

Beats launched their headphones as everyone hated Apple’s own white iPod ear-buds so much for the terrible sound they produced, even though they were hugely cool for a while too when the iPod first came out.

The second Beats activity is a recently launched, though so far only slightly successful, music streaming service called Beats Music. The key to Beats Music lies in the oft-repeated mantra of Jimmy Iovine to anyone who will listen that the future of a streaming service lies in intelligent curation for its customers. As he puts it wherever anyone is listening – “its all about the next song.” According to him it is also about data, and its intelligent monetisation – though without alienating your customers.

On the strength of the hardware business last September Beats was able to raise about US$500 million from David Rubenstein’s private equity firm The Carlyle Group, with a valuation on the company that The Wall Street Journal at the time itself estimated at “more than $1 billion.”

If that is actually the case, then Carlyle will have done very well if indeed an Apple deal for Beats really does go through. Music labels Universal Music and Russian- American Billionaire Len Blavatnik’s Warner Music Group are also invested in Beats, and their knowledgeable investor provenance could therefore hardly be better.

A couple of days ago we were all treated to a Dr. Drew, Heineken-fuelled, party on YouTube celebrating the newly minted near-billionaire. Then the video, which is a lot of fun, was mysteriously withdrawn – though there are still some interstices of the internet where you can still find it.

One reason why a deal with Apple is not yet publicly consummated might be the need for the record labels to transfer Beat’s streaming rights to Apple on such a change of ownership. Whilst this is certainly likely to be in their interests it may take a bit for them to cross yet another rubicon in the music industry’s relationship with Apple.

The appeal of Beats to Apple is said to lie in the vast respect both Dr. Dre and Jimmy Iovine are held, not just by Apple but by the whole of the music industry. With everyone searching for the next big thing in music, and with a gentle plateauing in Apple’s own music purchase model through iTunes, it could be a marriage made in heaven.

Jimmy Iovine was a friend of Steve Jobs, and is highly trusted by the entire music industry. With Iovine and Dr. Dre rumoured to be both joining Apple as advisors, it may be an excellent way for Apple to continue to reach out to young trendsters with cool brands as it prepares to grow its music business again, and as it prepares to add high fashion branding to its new wearables initiatives in the months ahead.

When a deal is confirmed, of course we will then learn a good deal more about it.

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