Why did Apple buy Beats? Not for the headphones

Jane McCallion Read more May 29, 2014

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Apple has acquired Beats for a total of $3 billion (£1.79 billion), with CEO Tim Cook saying it’s the first music subscription service to “get it right”.

The deal is the biggest acquisition Apple has made in its history, and will be made up of $2.6 billion cash and $400 million in shares.

While the deal includes the Beats Electronics headphone-making wing of the company, an internal memo from Apple CEO Tim Cook leaked to BRG makes it plain the Beats Music streaming service was the main reason for the purchase.

“Beats Music was built with deep respect for both artists and fans,” the memo said. “We think it’s the first subscription service to really get it right.”

“Music holds a special place in our hearts at Apple,” the memo continued. “That’s why we have kept investing in music and why we’re bringing together these extraordinary teams.”

We think it’s the first subscription service to really get it right

The memo and a public statement announcing the purchase indicate Beats Music will be incorporated into iTunes.

Eddy Cue, Apple’s senior vice president of Internet Software and Services, said: “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.”

Beats co-founders Dr. Dre and Jimmy Iovine will join Apple, although what their roles within the company will be has not been clarified.

“I’ve always known in my heart that Beats belonged with Apple,” Iovine said, in a statement with Apple. “The idea when we started the company was inspired by Apple’s unmatched ability to marry culture and technology.”

Headphone sales

The Beats headphones lineup, with headsets designed by artists such as Lady Gaga and Nicki Minaj, will be available from Apple Stores, the Apple Online Store and authorised resellers in the US and other countries, Apple said.

The purchase is set to close by the end of September, subject to regulatory requirements.

Rumours the company was set to buy the headphone maker first emerged three weeks ago.

This is not the first time Beats has done a deal with a hardware maker.

In 2011, HTC bought a 50.1% majority share in the company for $309 million, which led to Beats audio technology being featured exclusively on HTC devices.

However, in the words of Iovine, as reported by Re/code, the relationship “crashed and burned” and HTC had divested by the end of 2013.

If it had held onto its shares, the troubled smartphone maker could have made $1.29 billion in profit, assuming Apple had bought the company out.