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Well now it is official. Apple announced yesterday it has agreed to acquire both the critically acclaimed subscription streaming music service Beats Music, and Beats Electronics, which makes the popular Beats headphones, speakers and audio software. As part of the acquisition, Beats co-founders Jimmy Iovine and Dr. Dre will join Apple.
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The due diligence has been done and the price is set. Apple is acquiring the two companies for a total of US$3 billion, consisting of a purchase price of approximately US$2.6 billion and approximately $400 million that will vest over time. the deal is expected to close later in the year.
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“Music is such an important part of all of our lives and holds a special place within our hearts at Apple, ” said Tim Cook, Apple’s CEO. “That’s why we have kept investing in music and are bringing together these extraordinary teams so we can continue to create the most innovative music products and services in the world.”
“I’ve always known in my heart that Beats belonged with Apple, ” said Jimmy Iovine. “The idea when we started the company was inspired by Apple’s unmatched ability to marry culture and technology. Apple’s deep commitment to music fans, artists, songwriters and the music industry is something special.”
Well, for US$3 billion you would expect him to say that, but in this case it is likely accurate.
“Music is such an important part of Apple’s DNA and always will be, ” said Eddy Cue, Apple’s senior vice president of Internet Software and Services. “The addition of Beats will make our music lineup even better, from free streaming with iTunes Radio to a world-class subscription service in Beats, and of course buying music from the iTunes Store as customers have loved to do for years.”
In just five years since launch, the Beats “b” has become the brand of choice in the music and sports worlds, and is the market leader in the premium headphone market. Music superstars including Lady Gaga, Lil Wayne and Nicki Minaj have designed their own customized Beats headphones and speakers. Fashion designers and street artists such as Alexander Wang, Futura and Snarkitecture have collaborated on special limited products, while renowned athletes including LeBron James, Serena Williams and Neymar use Beats as a critical part of their training and game day process. Beats has quickly become part of pop culture in the US and with the acquisition the Beats product lineup will be offered in many more countries through the Apple Online Store, Apple’s retail stores and select Apple Authorized Resellers.
When asked about their combined future plans, Jimmy Iovine said in an interview with Tim Cook on Walt Mossberg’s new web site Recode, which he and Dr. Dre joined at the end , “Obviously, we can’t talk about that, as you know. See, in the record business, you can show someone your song, and they don’t copy it. In the tech business, you show somebody your idea, and they steal it.”
In other words there is a good reason for the Apple culture of secrecy – it is still one of the ultimate arbiters of “cool” and the go to place for techies wondering what the next big thing will be, it seems.
In the same interview Iovine also confirmed they would be turning up at Apple’s Cupertino HQ on a regular basis now they have joined the team, saying, “We have a commitment to this, as you would imagine. It’s been our life’s dream – we’ve built Beats up and wanted to finish this dream, and the best way to finish it is with this company.” Yes, and US$400 million of future vested consideration is certainly a good motivation for a commitment too.
One man who can certainly say I told you so is Carl Icahn, whose own major investment in Apple shares was for a while not universally understood on Wall Street. Apple shares closed at US$624 yesterday and, with lots of new product promised for the remainder of the year, and with the record date for their imminent stock split coming up, the company now seems to have plenty of wind in its sails looking forward.
