Apple spends $3 billion to purchase Beats Music

Steven Loeb · May 29, 2014 · Short URL:

Beats founders Jimmy Iovine and Dr. Dre will also be joining Apple

After weeks of rumors and speculation, it all turned out to be true: Apple is, in fact, buying Beats Music to gain a stronger foothold into the music streaming space.

The company announced on Wednesday it agreed to acquire the subscription streaming music service Beats Music, along with Beats Electronics, which makes the Beats headphones, speakers and audio software.

The final price: a whopping $3 billion, which includes approximately $400 million that will vest over time. Apple expects the transaction to close in the fourth quarter of this year, due to pending regulatory approvals.

In addition, as part of the acquisition, Jimmy Iovine and Dr. Dre, the co-founders of Beats, will be joining Apple in an unspecified capacity.

In a memo to employees sent out after the announcement, Apple CEO Tim Cook spoke about the company's history with the music industry, includling "selling Macs to musicians" and then launching iTunes. This deal, he said, will keep that tradition going.

"Music is an important part of our lives and our culture. Music has the power to inspire us, to comfort us, and to send our emotions soaring. It brings people together and transcends the limits of spoken language," he said.

"Music holds a special place in our hearts at Apple, and we know that we can make an even bigger contribution to something that is so important to our society. That’s why we have kept investing in music and why we’re bringing together these extraordinary teams — so we can continue to create the most innovative music products and services in the world."

In the memo he also revealed that the Beats Music streaming service will become part of Eddy Cue’s services team, while headphones and speakers will be handled by Phil Schiller.

“Music is such an important part of Apple’s DNA and always will be,” Cue said in a statement. “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 as customers have loved to do for years.”

There is a good reason for Apple to want to break into the music streaming space now: it is starting to look like the iTunes era may just be over. According to Mary Meeker's 2014 Internet trends report, which came out on Wednesday, digital track sales actually declined year to year for the first time, while streaming is on the rise. 

Buy Beats will actually give Apple two streaming services. Last year the company launched the Pandora-like iTunes Radio, or "iRadio." Now Beats Music will give it a Spotify-like on-demand service, though Beats does not offer the same free ad-supported service that Spotify does.

Right now the service only has 250,000 paying customers right now, Iovine revealed at ReCode's Code Conference on Wednesday. Compare that to Spotify, which recently said that it has 40 million active users, 10 million of whom are paying. So Beats has a long way to go before it can really compete.

Remember, though, that the service is very young, having only launched in January. That means there is still plenty of time for it to grow. Give it access to Apple's millions customers and it could explode.

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