Does Apple Acquiring Beats Make Sense?


News of Apple’s potential Beats acquisition spread like wildfire yesterday, but even more evidence that this might be a legitimate rumor is now on the table. The brand would be one of Apple’s biggest acquisitions ever and response to the rumor has been mixed; some pundits question Apple’s thoughts behind the purchase, while some experts have offered very compelling arguments for why the deal makes sense. But a recent interview held with Beats co-founder Jimmy Iovine along with other evidence may hold the truth.

Atop the many arguments already offered, it’s worth noting that Jimmy Iovine has had many connections with Apple in past, even going as far as to say that the entire idea behind the Beats brand was inspired by Apple in a recent interview with The Wall Street Journal:

“The idea of Beats…to be very frank, I got from Apple,” he said, noting the “uniqueness of their blending of technology with popular culture.”

Iovine had a meeting with Steve Jobs in 2003 to discuss a potential subscription music service, and even more recently met with current Apple executives Tim Cook and Eddy Cue to discuss the Beats streaming service in January of last year.

The New York Post reported just a few hours after the initial Financial Times news break that Jimmy Iovine is in talks to join Apple as a special adviser to Tim Cook in regards to creative matters:

Beats Electronics boss and veteran music industry executive Jimmy Iovine is in talks to join Apple as a “special adviser” to Tim Cook on creative matters, two sources close to talks tell The Post.

Of the information Iovine would bring to the table at Apple includes vast knowledge of the music industry as evidenced by an interview the Beats co-founder had with AllThingsD (embedded below), as well as a certain amount of “insider influence” that could potentially be a shot in the arm for advertising on Apple’s already existing iTunes Radio service.

A big part of Apple’s acquisition of the Beats brand would be its very successful higher-end headphone brand, an area that Apple has yet to explore with their own products despite having offered many different types of higher end audio playback devices in the past. This would potentially bring this line of products under the guidance of Jony Ive, and fill those gaps with new product lines and products (at least according to re/code).

On the other end of the spectrum, many analysts have come out with words of confusion regarding the deal, noting that acquiring Beats would be “out of character” for Apple. Notably, Gene Munster, a Piper Jaffray research analyst, had the following to say:

We are struggling to see the rationale behind this move. Beats would of course bring a world class brand in music to Apple, but Apple already has a world class brand and has never acquired a brand for a brand’s sake (i.e., there are no non-Apple sub-brands under the company umbrella). Separately, we are not aware of any intellectual property within Beats that would drive the acquisition justification beyond the brand.

Famous Apple pundit John Gruber was just as skeptical, saying “this doesn’t make any sense to me. I can’t see Apple keeping the “Beats” brand around for headphones.” 

If Apple wanted to sell expensive high-end headphones, they don’t need to spend $3 billion. The Beats streaming service is interesting, but can’t Apple do that on its own, as an expansion of the iTunes Music Store and iTunes Radio?

Jon Maples, a trusted journalist in the digital music space, had the following to say regarding the deal:

While music purchases may be falling, it’s still a big business for Apple. So instead of creating another option in iTunes that would potentially cannibalize download sales, why not just buy a service and keep it separate? Streaming blows up: Apple wins. Streaming doesn’t pan out, well, they still have the iTunes store chugging along.

John Gruber then went on to share this snippet on his blog, saying  it’s the “best take I’ve read so far, and the first to make a case that the separate (and established) Beats brand makes sense as a separate entity from iTunes.”

But disregarding the critics, the original Financial Times report suggests that the rumored acquisition could be announced as soon as this week. I guess we’ll just have to wait and see what happens.

How do you feel about Apple acquiring Beats?