Apple is reportedly buying Beats Electronics, the audio equipment and music-streaming service co-created by hip-hop mogul Dr. Dre.
The Financial Times broke the news of the reported deal which, at $3.2 billion, will be Apple’s largest ever.
The deal would come as Apple’s sales are flagging, a problem that stems from a lack of major new products that bring consumers to Apple stores, according to an investor note from Needham analyst Charlie Wolf obtained by Apple Insider. Apple also faces intense competition from Microsoft, Google and smartphone maker Samsung.
Why splurge on Beats, which can cost as much as $300? Part of the reason: the cool factor. Despite the hefty price tag, the headphones, a streetwise fashion statement with a signature “B” on the ear, are as popular with teens as they are with celebrities.
The “Dre” in “Beats by Dre” is Andre Young, better known as Dr. Dre. The Washington Post’s Soraya McDonald has a refresher:
He helped popularize West Coast gangsta rap, especially a sub-genre called G-funk, and was one of the founding members of NWA (Niggaz With Attitude). His 1992 debut solo record, “The Chronic,” is a classic within the hip-hop pantheon. He’s also credited with launching the careers of Eminem and 50 Cent when he signed them to his record label, Aftermath Entertainment. His is the sort of cool that doesn’t fade in the wash.
The deal could also be Apple’s entrée into the streaming business, where it recently experimented with limited success. Subscription services such as Spotify and Rhapsody are the biggest growth area in the music industry. Revenue went up by more than 50 percent last year, topping $1 billion for the first time, according to a recent International Federation of the Phonographic Industry report.
Meanwhile, music downloads from services such as iTunes are declining. Album sales were down by 14.2 percent and individual song downloads by 12.5 percent at the end of last quarter, according to Nielsen SoundScan.
But the possible deal left some scratching their heads. Introduced in January, the Beats Music streaming service was late to the game, and its product has been panned by some critics, noted Business Insider, who described the potential acquisition as “un-Apple.” If Apple’s mission is to make the best products, why go after Beats?
But Ben Bajarin, a consumer technology analyst for Creative Strategies, doesn’t think the deal is a departure from Apple’s strategy of buying companies with promising technology and talent to help develop future products. “This would have to fit into a much longer, more innovative strategy around perhaps the hardware and the service,” he told the New York Times.