Apple’s Purchase of Beats Electronics Signals a Change

Posted by Super User
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on Monday, 12 May 2014 in Blog Posts

Last week, news of Apple’s upcoming $3.2 billion purchase of Beats Electronics, the company formed in 2008 by Dr. Dre and Jimmy Iovine, was leaked to the press.  Neither Apple, nor Beats Electronics have confirmed this news, but Dr. Dre’s announcing that he’s the “first billionaire in hip-hop” would seem to provide confirmation of this leak.

Musicians’ images have been used for years to endorse products (see what Elvis Presley or Frank Sinatra are selling, nowadays), but this reported purchase of Beats Electronics represents something new for the music industry: the large-scale purchase of a musician-created brand.  Certainly, many musicians have diversified their business well outside of music in the past, but Apple’s purchase of a musician-owned mega-brand by an even larger mega-brand is unprecedented.

BeatsLet’s take a look at what Apple would be getting with a purchase of Beats Electronics.  Certainly, Apple not need embark upon this deal if they want to get in the business of selling headphones, as Apple has proven itself quite capable at developing and selling consumer electronics.  Likewise, I would be very surprised if Apple needed outside help in programming a music streaming service such as Beats Music.  Apple probably has enough programming expertise surrounding the average Cupertino foosball table to pull that off.  As I see it, the substantive value of this deal for Apple is their acquisition of a successful brand centered on Dr. Dre’s image ($1 billion in sales per year) that includes hardware and content, plus the management talents of Jimmy Iovine.

It appears that this deal might be an indication Apple’s future strategy, because if they really just wanted to attach the cache of the Dr. Dre brand to Apple, it’s likely that a licensing arrangement could be put in place, as was the case with Chrysler.  No, this deal is bigger.  With Jimmy Iovine in-house, it’s possible that Apple’s “next big thing” may not be another shiny piece of electronic brilliance, but rather something involving content as much as hardware.  It’s hard to believe, but it’s been 13 years since Apple changed the music purchase business with iTunes.  Perhaps Apple will use its considerable resources, apparently including those of Beats Electronics, to revolutionize music streaming.

Finally, I must say that it’s hard to look at this deal without being inspired by Dr. Dre.  While Jimmy Iovine certainly has had a very impressive career, it’s Dr. Dre that has been the innovator by demonstrating the possibilities for a well-diversified musician.

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