Apple Buys Beats: Marketing Genius or a Massive Waste of Cash?
After just a few short weeks, the speculation has been confirmed: Apple (NASDAQ:AAPL) will be buying both Beats Music and Beats Electronics for a total of $3 billion.
“People familiar with the negotiations” leaked news of negotiations between Apple and the two Beats companies to The Financial Times earlier in May. The two companies — a music streaming service company (Beats Music) and a headphones, speakers, and audio software company (Beats Electronics) — were co-founded by Jimmy Iovine and Dr. Dre, who will both join Apple as part of the deal.
In a press release, Iovine professed that, “I’ve always known in my heart that Beats belonged with Apple,” and the market appears to be in similar, if less enthusiastic, spirits. Shares of the tech company jumped nearly two percent following the announcement, even as critics questioned the wisdom of the decision to acquire what some consider to be little more than a marketing machine. In the video above, Bloomberg’s Trish Regan asks if Apple could have bought the company for Dr. Dre and Iovine as much as for any other reason. Jon Erlichman goes so far as to argue that the purchase of Beats was really just a talent acquisition.
Perhaps above all else, the two men come with a direct line into the kind of consumer at the core of Apple’s customer base. At least, it theoretically has a direct line into that customer base. The relatively small size of the user base for Beats Music has been cited as a weak point of the deal, and many have questioned why Apple didn’t simply pursue a company like Spotify with far more users. While Apple and Beats Electronics may be on the same wavelength as far as brand is concerned, it’s unclear if the products produced by Beats are up to par with traditional Apple fare.
So the market reaction, at least in the short term, was positive. The addition of new top talent and some new users makes Beats a fairly attractive addition to the Apple corporate leviathan. Whether or not the addition will be worth the $3 billion will only be answered in the long run, but the move does point more of Apple’s considerable weight in the direction of the music industry.