It's official! Apple buying Beats Electronics for $3B...

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It's official! Apple buying Beats Electronics for $3B...

 

 

 

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from the CNET article...

 

The 'star-struck' premium

 

Like those who pay top dollar for a set of cans with the ubiquitous lower case "b" on the sides, Apple is paying a premium, too.

 

PrivCo, a provider of financial data on private companies, estimates Beats Electronics made about $1.02 billion in revenue last year for a profit of $40 million, which was weighed down by debt payments linked to private equity firm Carlyle Group's leveraged investment last year and big dividend payouts to Dr. Dre, Iovine, and Vivendi, a corporate backer through its Universal Media Group.

 

"Apple is paying a star-struck valuation for Beats Electronics, based on PrivCo's analysis of Beat's private financials and comparable consumer electronics companies," the data provider said. "No rational analysis can justify Beat's valuation of $3 billion without some unknown strategy only Apple is privy to, such as expanding into headphones used as wearable tech."

 

The acceleration of subscription music services may have contributed to the premium Apple paid, too. Although Apple could craft its own subscription service, and likely will need to negotiate new licensing deals with major music labels after Beats acquisition anyway, it will gain the human curatorial cachet that Beats Music has marketed as its identity. And though Beats Music's subscriber numbers are limited by its lifespan of just four months, a major partnership with AT&T gave it a jump start into a huge base of potential customers, and it will soon have iTunes' 800 million global registered users to work with.

Others don't think Beats' ~200K subscribers is such a 'huge' jump start, though. Spotify has 6 million paid subscribers. [EDIT: LA Times puts it at ~250K. http://www.latimes.com/business/technology/la-fi-tn-apple-beats-music-streaming-20140529-story.html ]

 

And, though I've said it before, I'll say it again, of the six subscription streaming services I've been on in the last decade, Beats Music is -- by far and away -- the most stunted excuse for an on-demand music service ever.

 

Check these quotes from users, some of whom were MOG users when Beats bought MOG and then closed it down:

 

MOG had a very nice play queue.."Add to queue", "play next" ect...find nothing in Beats...Very disappointing...Hopefully this will be corrected VERY soon. We like to sit around and pass the iPad around and everyone queues up a song they want to hear next. With MOG it was a breeze, can't do it with Beats....I like the ability of queuing what I want to hear next, not what someone THINKS I should hear next.

Please give us a queue. You know how annoying it is to listen to one song, wait for the end, then play the next song. I want to just click "Add to Queue" and look around. I have work (or driving to do), I can't select songs or albums one by one every few minutes. Major negative mark for Beats.

MOG was for people who can think for themselves. Beats is for those who need someone to tell them what to listen to, and not let you change it.

MOG UI was straightforward, pretty intuitive, and highly functional in setting up and controlling exactly what you wanted to hear.

I don't get why they didn't simply take the MOG UI and start adding the whole "we know better than you" stuff out of the way somewhere where people who actually want it could find it.

I just started the trial a couple of days ago (along with those for Google Play All Access and Spotify) and all pale compared to MOG for ease of use and flexibility. And Beats, who had full access to all of MOG's intellectual property, is the worst of the bunch. It was clearly either not really ready for release or just was never intended to deliver MOG's flexibility.

 

[Phil O'Keefe]

This is a me-too step on Apple's part, not a innovative one. IMO, it's not a very good business decision. Apple's products are usually some of the best, if not THE best in their respective product categories. Beats headphones are a fashion item at best, and not true high-fidelity cans, and they, as well as their streaming service, are both weak by comparison to past Apple innovations such as the iPod, iTunes store, etc. etc.

 

What the heck is Apple management thinking???

 

[WRGKMC]

I don't know, it has me scratching me head too, but I do have a first hand example that occurred yesterday. There's a young guy at work here whose from the Video game generation who is heavy into the Gaming and Video stuff. We were in the break room and he was glued to a game show that was giving away Beats headphones as a prize. I mentioned what a lame prize for a game show. They used to give away cars and Vacations.

 

His comment was he's give his left nut for a pair of those headphones. I said you got to be kidding, but he was serious about it. There must be some cult marketing going on within his media circuits. I know Bose sells bones at super high prices, but they have been targeting a whole different crowd. You'd find there adds in magazines like the Air Mall that's loaded with high priced gizmos where people who have the cash to fly might see them.

 

I've only been aware of the Beats bones for a short time. The adds looked like they were targeted to DJ's playing Rap music and multimedia users. Nothing in the adds attracted me and they looked like over priced cheap plastic junk to me. I surely wouldn't by an audio product from a manufacturer who doesn't list their specifications. I've always seen that as a sign they are hiding something that don't want people to know.

 

I think its an idiotic purchase myself, but maybe they see more then a passing fad. All the computing companies are hanging on by their fingernails trying to one up the other guys. Even if its a dumb purchase, Apple does know how to make the whole media hype thing work. If they can get people to stand in line and start riots for the latest cellphone, they can probably do the same with the latest blue tooth headphones.

[Vito Corleone]

It's about the branding pure and simple. The Apple name has nowhere near the same cache with the under-30 crowd that it does with older customers, but the Beats name does, as WRGKMC co-worker shows us. That the headphones may suck is irrelevant. And if that's ever really an issue, Apple can always start putting better speakers in there if they want.

 

Much more important is that they can use the name to launch other product lines targeted to that age group. Boomers aren't a market worth going after anymore. Gen Xers won't be for all that much longer either.

 

They probably paid too much, but that's all relative too. Apple has a ton of cash to throw around. They can afford to overpay a bit.

[nat whilk II]

Just speculatory musings, but this is Apple we're talking about, so I'm thinking they're thinking of some big innovations here that will roll out over time. The Beats software and search engine and suggestions routine - surely that's not worth the bazillion dollars - my guess is that it's the customer base and the huge rolling wave of build-up media hype that Apple can now make use of and steer where they will.

 

Apple knows how to make good products. Although iTunes is a bit of a weak link in their mighty chain, it's still a decent product - and I'm betting they'll bring Beats up to at least the level of iTunes. Maybe improve both, let's hope.

 

It does seem like a pretty significant move in the ever-growing tendency to replace CDs and downloading with streaming. Apple won't want to get left behind - they'd rather be in front, guiding the herd towards their feed lots.

 

nat whilk ii

 

[blue2blue]

Lots of good points, a number of which have been touched on by various industry analysts, as well.

 

I'm guessing it's about Apple's perception of the Beats brands acceptance among the young. I think the notion it's a 'Bose' for millennials is not without merit. And, of course, this is hardly the first time the Bose model and Apple product/market strategies have been linked in comparative analyses -- many parallels there.

 

But, as PrivCo pointed out, unless they've got some synergistic wearable tech innovation up their sleeve, paying so much for Beats -- even with its branding -- seems more than a bit of overreach. As noted elsewhere, they could have got 6 MILLION subscribers by buying Spotify, which they probably could have gotten cheaper. Conversion from free Beats trials apparently has been very disappointing, I don't think anyone expected they'd only have 200K subscribers at this point -- but considering how incredibly bad the player and service are, maybe it's not. But that just makes Apple's go-ahead on this stranger still.

 

But, as suggested by myself and others, the Beats service is SO bad that it's all but impossible to imagine that Apple won't push to have it substantially upgraded.

 

 

[Vito Corleone]

Yeah, it's not about the subscribers. It's not about whether the cans are actually "pro quality" or not. I'm amazed at how many analysts have gotten this wrong.

 

But then again, most of these analysts are probably older boomers who had barely even heard of Beats in the first place, which is one reason why they are so surprised by it.

 

I think Apple sees the company as a younger version of themselves in many ways. Innovative and, most importantly, really well respected among a particular demographic and highly 'branded'. Quality---whether it's the headphones or the streaming service---can always be improved upon and right now doesn't seem to be an issue with the target demographic anyway.

 

Also notable that they are keeping Iovine and Dre on board. If they just wanted the brand, they probably could have bought that. Clearly they feel these two bring something important to the mix. Maybe they feel there's a bit of that old Jobs magic with those two.

 

Of course, it all could turn out to be a big bust. OTHO, analysts have laughed at or at least scratched their heads at Apple's moves in the past and turned out to be wrong.

 

[blue2blue]

Amazon is apparently throwing its hat in the ring -- with a slight difference, their service will be included with the $100/yr Amazon prime service -- but will only have 'newish' and older releases -- nothing newer than 6 months. (For many folks, that's probably not going to make a huge load of difference.)

 

http://www.macrumors.com/2014/05/29/...music-service/

 

 

Meanwhile, Google appears to be sneaking their own unglamorous but far more powerful subscription service, All Access, into markets around the world: http://www.cnet.com/news/google-play...the-globe-q-a/

 

So, though the chatteratti have barely tipped to the issue, maybe it's the fact that Google Play Music is already in 28 national markets that got Apple lathered up into a buying mood.

 

Since we're talking UI's, let me say that as powerful and well-featured as All Access is, it also really takes some getting used to. To that end, I started a User Tips wiki in the Wikia wiki farm: http://googlemusicusertips.wikia.com/wiki/Wiki_Content

[Anderton]

I think it's that Apple wants to brand itself as a lifestyle company. Computer company > technology company > consumer electrronics > lifestyle brand, it's a logical progression. Beats is a lifestyle brand (it's definitely not the quality) so Apple gets that mojo.

 

Apple has the advantage of already being that to some degree. It's difficult to decide to be a lifestyle brand; it's more like you wake up one day and realize you, like Harley-Davidson or actually, Gibson is to a large extent. Apple's path to more money isn't Logic Pro upgrades, or even smartphones. It's licensing the Apple name to a franchise of coffee shops, cat food, Lego characters, etc. While those are extreme examples, you get where I'm going...

 

How many here have bought the new Mac Pro cyclinder?

 

Meanwhile, Windows 9 looks like it's going to pull off a coup Apple hasn't done - integrate the mobile and desktop worlds. No iOS/OS X schism. Their push for the new Surface involves a partnership with a sales force-oriented software company. I think within a couple years, you're going to see sales reps with Surfaces instead of iPads...making their pitch in an Apple Cafe.

[blue2blue]

I think it's that Apple wants to brand itself as a lifestyle company. Computer company > technology company > consumer electrronics > lifestyle brand, it's a logical progression. Beats is a lifestyle brand (it's definitely not the quality) so Apple gets that mojo.

 

Apple has the advantage of already being that to some degree. It's difficult to decide to be a lifestyle brand; it's more like you wake up one day and realize you, like Harley-Davidson or actually, Gibson is to a large extent. Apple's path to more money isn't Logic Pro upgrades, or even smartphones. It's licensing the Apple name to a franchise of coffee shops, cat food, Lego characters, etc. While those are extreme examples, you get where I'm going...

 

How many here have bought the new Mac Pro cyclinder?

 

Meanwhile, Windows 9 looks like it's going to pull off a coup Apple hasn't done - integrate the mobile and desktop worlds. No iOS/OS X schism. Their push for the new Surface involves a partnership with a sales force-oriented software company. I think within a couple years, you're going to see sales reps with Surfaces instead of iPads...making their pitch in an Apple Cafe.

Despite my great antipathy to Win 8's UI face, a few weeks ago I was thinking, you know, I don't know if the Android system will ever be extensible enough to handle real, workday computing, at least not without wrenching changes to its whole way of being and acting. It's as though it's crippled not by intent but by concepts.

 

Clearly, MS has got a real challenge with W9 but I keep thinking they may be the only major company with the real multi-tasking OS chops to get the guts right. But I think much will remain to be seen if they can make the, uh, topside match the engine in terms of software interoperability -- because that's clearly one area where iOS and Android are barely on square one. [Well, iOS makes it all but impossible by the manner of their app sandboxing, as I understand it; but I'm no iOS maven, by a stretch.]

[Anderton]

Microsoft was apparently quite humbled by the Windows 8 disaster, and very much wants to avoid making the same mistake twice. They see the seamless mobile/tablet/desktop integration as something that will leap them past Apple and Google. Windows 8 was supposed to do that, but it was designed by people who didn't really understand mobile computing.

 

I think the biggest danger is if Windows 9 compromises the desktop experience, but I think Microsoft is aware they had better not let that happen.

[blue2blue]

Again.

[Geoff Grace]

I think this is the real beginning of the post-Jobs era for Apple. Most of what we've seen so far since Jobs passed away was probably already in the pipeline while he was still alive, but I really doubt the Beats acquisition was.

 

A hallmark of the Jobs era was that there was usually more than meets the eye in Apple's decision making. For example, in the beginning, people shook heir heads over the iPad; but it turned out that it filled a real niche. I'd like to think that's what's going on here as well, but it's far too early to tell.

 

Best,

 

Geoff

[blue2blue]

I strongly suspect they see a 'natural synergism' between their very profitable mobile device business and the popular bling-accessory headphones. After all, with headphones that size and weight, you could pack a fair amount of miniaturized circuitry in them, certainly they could put in Bluetooth receivers and maintain any proprietary restrictions via software, since I think we will likely see a greater vertical integration and perhaps even further exclusion of other (or simply unauthorized) vendor products, as that is one aspect of Apple's Jobsian vertical integration and customer lock-in model (borrowed in large part from the classic Big Blue IBM of the 60s) that I think will remain intact for years to come -- since Apple's success made many in the industry (including even the third-party cooperative market-oriented MS) take a long, hard second look at long held ideas about cooperative markets vis a vis vertical integration.

[WRGKMC]

Several of their models already had the Bluetooth in them from what I viewed on line.

I could see them building in additional wireless applications that are accessible from a note pad, computer or phone.

[blue2blue]

Several of their models already had the Bluetooth in them from what I viewed on line.

I could see them building in additional wireless applications that are accessible from a note pad, computer or phone.

But only from an iDevice or Mac.

[WRGKMC]

Exactly. I'd expect Mack only programs to integrate with them and they'd be sold with their computer packages.

If you open up Garage band or Logic, those programs would intergrade. Add a mic to a set of headphones and you have an all in one podcast for doing webcasting, Multimedia, no problem. Want to switch tracks, use that voice activated track changer, want to dictate a letter, no problem stick the cans on and talk away, want to watch movies, again, stick the cans on, change the Netflix selection, again voice activated.

 

I can think of dozens more but I'll bet dollars for donuts it will be incorporated in "multimedia package for dummies" who want to do all this remotely. Add in the cloud and they can use the headphones from their phone or pad and access their home computer.

 

Again, all of this stuff is doable already but you need a number of different technologies going that really don't intergrade well. Apple likely has some kind of vision for this and are pretty good at coming up with a simple neat package that does it all.

 

My only beef is it will likely be too simple, non expandable unless they choose to expand it and it will cost you your left nut to purchase.

Those do have merits within themselves, but if this thing backfires it could be one of the biggest flops for that company. My wife works at HP and I get to hear about the way the market changes and how they target the market to get sales. They in fact were going to jump into the Touch Pad market stopped right after launching the products withdrew and sold off all of the hardware they had already manufacturer and backed out.

(We bought a few of those tablets and they were quite excellent by the way)

 

I never did find out exactly why they did that but I suspect it has to with product support. HP sells allot to big business and some end users and do have an excellent product line. Tablets are a whole different market. Sell them too cheap and you have every kid in town who cant get his preferred apps to run bogging down the support centers. Make it too complex and you may get some power users but no bread and butter. Its a real tough call and its better left to those who have a clear vision of where the markets are going. As the old saying goes, if the wine is sour throw it under the bus and don't look back.

 

That will be hard for Apple if it fails. I do respect how far they have come unlike others don't give them as much credit as others. I just been in that business too long and have seen so many flops when it comes to computing gear, most based on short sighted trends companies thought would make them money. They wind up spending years working out the kinks and its completely obsolete when they finally fix the issues. They just been really lucky they have a loyal base or they would have been toast a long time ago.

[Goober(s)]

Um...

 

 

Proprietary headphones? never never never...

 

A lifestyle brand that licenses its name? never never... (never has, never will)

 

Surfaces outselling iPads? yeah... because Microsoft is so successful with their tech gadgets these days....

 

 

 

Well, you're all wrong!

 

 

 

I think Apple is going after:

 

 

1. people (Dre and Iovene to help make deals),

 

2. the streaming service (much as Apple canabalized a similar company before regurgitating its software as iTunes),

 

3. a way to spend some of its cash banked outside of the U.S outside of the U.S. (this won't require U.S. cash)

 

4. recapturing coolness. Beats headphones may sound like ass, but they're cool.

 

 

[Geoff Grace]

If the opening paragraph of Apple's press release is any indication, they give "subscription streaming music service Beats Music" top billing over Beats Electronics, supporting the notion that streaming is more important to them than headphones. And I imagine it's no small matter to Apple that, "As part of the acquisition, Beats co-founders Jimmy Iovine and Dr. Dre will join Apple."

 

In the following paragraphs, Apple goes on to talk about Jimmy Iovine before they discuss Beats. Of course, one can only speculate at this point; but my guess is that this is more about Jimmy Iovine and what Apple can build with his expertise—and Dr. Dre's—than it is about the Beats company

 

Considering Apple's focus on integration between its devices that was stressed at this week's WWDC keynote, I wouldn't be surprised if they're looking for a similar synergy between iTunes radio, music store, and streaming; and even more importantly, a stronger integration into the record industry and perhaps even artist marketing and development.

 

Time will tell, but it'll be interesting to see what comes of this.

 

Best,

 

Geoff

[Geoff Grace]

More speculation on what Apple is up to:

 

Look beyond headphones, play lists, music streaming, wearables and label deals

 

Best,

 

Geoff

[BushmasterM4]

Classic Shell is an easy fix for the stupid Windows 8 desktop http://www.classicshell.net/ . As far as the "Beat/Apple" deal... the bean counters must be crackheads !!

[blue2blue]

More speculation on what Apple is up to:

 

Look beyond headphones, play lists, music streaming, wearables and label deals

 

Best,

 

Geoff

So Beats Music will be like a trip to the mall with a teenaged shopper. I get it now.

 

That's good, I guess, because it is utterly terrible as a stream service, worst of the six I've used over the last decade. By several crowd-clearing leaps. I'm guessing Apple will have to take over the music-mall aspects, since the Beats team can't even seem to run the world's most basic and limited music service very well.

 

 

Aggregating demand. LOL. Like the audience-facing marketing term, curation... that bit of MBA-speak is a nice way of saying sheeple-herding.

 

 

 

 

 

 

[WRGKMC]

"In essence, Beats aims to become Uber of music by aggregating demand, connecting listeners to artists and empowering the artists to build thriving business on top of the platform"

 

Well my guesswork wasn't too far off. They are going to build a multi level platform of some type with this acquisition. Didn't think it would be so focused on only music artists. For someone like us we tend to think of the music business as the center of the world, but to the normal public, its small potatoes in their lives. If this is targeted to kids, I still question its sensibility. Artists who target youth should know its a moving target. Fads are short lived and has an average lifespan of 4 years because that generation will move from say high school to college, or college to the working world and they priorities take big changes at that point.

 

If this is exclusively for artists to target their artwork within the industry, I just don't see a clear path there and when you have a company building a model around pop star models it tells me they been smoking too many diodes.

[blue2blue]

I think a lot of that slippery talk suggests they're going to offer co-promotion opportunities for big stars, product and movie endorsements/placements and tie-ins, maybe even ways for them to directly sell their own non-music product (w/ Apple taking their customarily large slice).