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Brier Dudley offers a critical look at technology and business issues affecting the Northwest.

May 28, 2014 at 2:14 PM

Apple confirms purchase of Beats for $3 billion

In a bid to freshen its music offerings, Apple today confirmed that it’s buying Beats Music and Beats Electronics for $3 billion.

Beats headphones displayed next to an iPod in a New York Apple store last month. Photo credit: Andrew Burton, Getty Images.

Beats headphones displayed next to an iPod in a New York Apple store last month. Photo credit: Andrew Burton, Getty Images.

“Music is such an important part of all of our lives and holds a special place within our hearts at Apple,” Tim Cook, Apple’s chief executive, said in a release. “That’s why we have kept investing in music and are bringing together these extraordinary teams so we can continue to create the most innovative music products and services in the world.”

A series of electronics companies have gravitated toward Beats not just for technology, but because of the promise that its brand and hip-hop pedigree will boost their cachet with young consumers.

Beats, founded in 2008 by music industry icons Jimmy Iovine and Dr. Dre, is known mostly for high-end headphones. The company also has a fledgling streaming music service that competes with Spotify and Seattle’s Rhapsody.

Beats also produces audio software used in Hewlett-Packard computers, Chrysler cars and older HTC phones.

HTC went so far as to buy a majority stake in Beats in 2011, when Beats was valued at about $600 million. HTC sold back its shares over the past two years as the mobile phone maker’s core business struggled.

Apple’s plans to buy Beats were first reported on May 8 by the Financial Times, which said at the time it was a $3.2 billion deal.

Today Apple announced that it’s paying $2.6 billion in cash plus $400 million that “will vest over time.” It also said Iovine and Dr. Dre are joining the company.

Apple bought an online music service called Lala in 2009 and shut it down the following year, but it apparently intends to continue offering the Beats subscription service. A document leaked in March suggested that Beats had just 110,000 paying subscribers.

“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,” Eddy Cue, Apple’s senior vice president of Internet software and services, said in the release.

Apple’s move could raise the profile of subscription services that charge monthly fees for access to large online music catalogs and perhaps lead to further acquisitions in the space.

The deal will give Apple a larger share of the proceeds from the sale of high-end audio accessories used with its phones, music players and computers. Apple includes basic earbuds with its devices and sells higher-end headphones through its stores, including Beats headphones ranging in price from $170 to $380. Having a larger share of the accessories business could offset the continued decline of iPod sales and slowing sales of the iPad and iPhone.

Apple finalized the deal in time for Cue to discuss it during his scheduled appearance tonight at the Code tech conference in California, and in time for Cook to discuss it at Apple’s annual developer conference next week.

Apple expects the deal to close in its fourth quarter ending in September, if it’s approved by regulators.

An image provided by Apple, via AP, showing Iovine, Cook, Dr. Dre and Cue at Apple headquarters:

Apple_Beats_Acquisition

Comments | Topics: Apple, beats, digital music

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