Apple announced on Wednesday that they had acquired Beats Electronics for $2.6 billion in cash and $400 million in equity. This acquisition brings Beats headphones and steaming service as well as founders Dr. Dre and Jimmy Lovine into Apple. The purchase was mostly prompted by Apple’s struggling music business, which has taken a hit due to the more competitive market.
The growth of the streaming market in recent years has begun to encroach on Apple’s iTunes service, resulting in decreased sales. The company stated that purchasing Beats Electronics was done to boost their music division. With Beats, Apple is gaining the company’s popular headphones as well as gaining their music steaming service which will likely be used by Apple to compete against new competitors.
Sony Music Entertainment Chief Executive Doug Morris stated that the deal will make Apple “cool” again by uniting Mr. Iovine’s love for “the culture of young people” with Apple’s “many millions of young peoples’ credit cards.” Doug Morris was the former chief executive of Universal Music and the boss of Iovine when Beats Electronics started. Morris said “Apple was starting to lose their edge”, which is very true considering the increased sales for Android devices and new streaming services.
Apple will continue to sell the headphones under the Beats brand, which is a very odd move for the company. Apple typically focuses on their own branding, which has served them well over the last decade. A uniform system of immediately identifiable, interconnected products is what has made Apple successful.
What many will wonder is how Apple will integrate the Beats brand with their other devices and how they will be marketed. On the Beats front, it’s likely production of products will continue as they did prior to this acquisition. Anything else beyond that remains a mystery until Apple speaks about their strategy with Beats, which may be around the corner at WWDC next week.