
Apple Confirms Its $3 Billion Deal for Beats Electronics - bedhead
http://www.nytimes.com/2014/05/29/technology/apple-confirms-its-3-billion-deal-for-beats-electronics.html?src=twr&_r=0
======
callmeed
Honest question: is there a statute of limitations on what the tech world will
tolerate with regards to misogynistic behavior (or bad behavior in general)?
Or do people just pick and choose what they want to fight?

I ask because everyone rallied behind RadiumOne's CEO being canned after he
beat up his girlfriend [0]. Similar with the Mozilla CEO (granted, the offense
was different ... but it's interesting to point out that his transgression
happened 6 years ago).

But now Dr Dre is about to become an executive at the largest tech company in
the world and people seem to be lauding the move despite the fact of (A)
misogyny in his lyrics since his NWA days and [1] (B) him beating the crap out
of a female reporter, doing probation and settling a civil suit out of court
[2].

Am I comparing apples and oranges here? (pun intended!)

[0] [http://techcrunch.com/2014/04/27/ceo-gurbaksh-chahal-
fired-f...](http://techcrunch.com/2014/04/27/ceo-gurbaksh-chahal-fired-from-
radiumone/)

EDIT: spellling

[1] [http://rapgenius.com/Dr-dre-bitches-aint-shit-
lyrics](http://rapgenius.com/Dr-dre-bitches-aint-shit-lyrics)

[2]
[http://en.wikipedia.org/wiki/Dee_Barnes#Dr._Dre_incident](http://en.wikipedia.org/wiki/Dee_Barnes#Dr._Dre_incident)

~~~
smegel
Sad this is the top comment in this page. Is feminism really the most
important issue for a hacker community?

~~~
redacted
If this was reddit, that'd be called 'karmawhoring' \- posting comments that
play to the crowd while being tangentially related to the story, in order to
get a big pile of internet points.

~~~
smegel
I get that juvenile Redditors find pictures of cats amusing - I find it less
easy to grasp why a technical hacker/start up community is less interested in
the technical/business aspects of a major tech deal than the somewhat
unsurprising revelation that a famous rap artist said mean things about women
(many years ago from what I [now unfortunately] understand).

~~~
RobAley
Because we are a (generally) well educated, grown-up, empathetic community who
realise that hacking/start-ups are great, but not the be-all and end-all of
life, and that some things are important to stand up for/against even when
only tangentially related to the topic at hand.

------
abalone
The most interesting reveal from Tim Cook's quote is that he only mentions the
music service and the talent, not the headphones.

That's super interesting. It basically means Apple looked at this like a
typical Apple aquihire / component technology purchase (of the service), that
just happened to have a multi-billion dollar profitable accessories business
attached to it. That makes it a very unique kind of deal.

~~~
JumpCrisscross
Wild hypothesis. Amazon started as a book distributor. Now it is fighting to
become a publisher. iTunes + iPod started as a music distributor. What if it
now has ambitions as a label? How would one build that out of Cupertino?

One would start with a fringe, fragmented genre, to serve as a beachhead.
Fragmented by not flat - there should be a node near the top of a hierarchy
which can be acquired and leveraged.

$1.3 billion in 2013 headphone sales justifies a $3 billion valuation neatly
by itself. But this acquisition certainly comes with interesting optionality.

~~~
swombat
You'd have to be pretty insane to spend $3b to get into the content industry
in 2014. First, it's an industry that's been plummeting for a decade,
secondly, the entire recording industry is worth about that much, and thirdly,
the entire concept of making money from copyrighted works of art is under
threat.

This theory doesn't hold water, sorry.

~~~
JumpCrisscross
The meat of this deal is the headphones business [1]. I'm opining on the
transaction's optionality for Apple. A lot of attention has been given to the
streaming service. I'm pointing out another joker Apple may have considered to
hold, if not immediately play.

[1]
[https://news.ycombinator.com/item?id=7812793](https://news.ycombinator.com/item?id=7812793)

~~~
stcredzero
How did you arrive at the 15% margin figure?

~~~
JumpCrisscross
($3 billion purchase price [1] / 14.9x AAPL P/E ratio [2]) / $1.3 billion 2013
Beats headphone sales [3].

We are asking how much in earnings (E) would Beats need to earn to give a $3
billion price (P) no more than a 14.9x P/E ratio. We then turn those minimum
earnings E and turn them into a quick-and-dirty margin by dividing E by sales.

[1] [http://www.nytimes.com/2014/05/29/technology/apple-
confirms-...](http://www.nytimes.com/2014/05/29/technology/apple-confirms-
its-3-billion-deal-for-beats-electronics.html?src=twr&_r=0)

[2]
[https://www.google.com/finance?q=aapl&ei=_0qGU5C_BabzsgeenYH...](https://www.google.com/finance?q=aapl&ei=_0qGU5C_BabzsgeenYHACQ)

[3] [http://nypost.com/2014/05/27/apple-cuts-purchase-price-of-
be...](http://nypost.com/2014/05/27/apple-cuts-purchase-price-of-beats/)

------
gareim
Apple redefined the mp3 player market, the ultraportable laptop market, the
smartphone market, the tablet market, and now they're buying a company that
reinvented the higher-end headphone market. Is it smart of a brand that has
traditionally created their own iconic images to buy another cultural icon for
$3 billion? I don't think so.

Maybe this gets used a lot, but would Steve Jobs have done this? Or would he
have created his own headphones and music streaming service?

I'm willing to bet anything this is going to be seen as where Apple's golden
age began to wane.

EDIT: I said "higher-end" because it's perceived to be, even though
audiophiles would never agree. The consumer market believes that Beats and
Bose are king though. That's another reason that I'm against this purchase;
Apple isn't even buying anything technically higher end (Sennheiser,
Beyerdynamic, HiFiMan, what have you).

~~~
sz4kerto
> reinvented the higher-end headphone marke

There's zero high-endness about Beats headphones. They're all right (at least
if they were priced around 30% of their current price), but really, they don't
sound particularly good.

~~~
taylorlapeyre
It doesn't matter if you're paying for sound quality, fashion, or the brand
name. They cost $150-$300. That's higher-end.

~~~
jokoon
it's not worth that price

~~~
jokoon
hello beats audio employees

------
JumpCrisscross
The meat of this deal isn't likely the streaming service. Beats Music had only
111,000 subscribers as of March [1]. Compare that to Spotify's 10 million
paying subscribers, 30 million non-paying users, and $4 billion valuation.

The deal's financial logic is driven by Beats's $1.3 billion business (in
2013) of selling high-priced headphones. Given Apple's P/E ratio of 14.9x
earnings [2], the acquisition would make sense so long as Beats were running
at least a 15% profit margin on those headphones. That's a surer basis for a
$3 billion bet than a nascent streaming service.

[1] [http://nypost.com/2014/05/27/apple-cuts-purchase-price-of-
be...](http://nypost.com/2014/05/27/apple-cuts-purchase-price-of-beats/)

[2]
[https://www.google.com/finance?q=aapl&ei=_0qGU5C_BabzsgeenYH...](https://www.google.com/finance?q=aapl&ei=_0qGU5C_BabzsgeenYHACQ)

~~~
danudey
Your argument makes sense, but it kind of falls apart when you consider that
Beats aren't actually good headphones, to the point where The Wirecutter
actually did an article[1] where they listed all the various Beats products
and then provided examples of better deals (some of them with significantly
better quality at half the price).

I don't understand why Apple would buy a headphone company that makes pretty
but lousy products whose price is only justified by the brand name; Apple gets
that unjustified criticism already, they hardly need to reinforce it by
acquiring a brand to which it actually applies.

[1] [http://thewirecutter.com/reviews/faq-what-are-some-
alternati...](http://thewirecutter.com/reviews/faq-what-are-some-alternatives-
to-beats/)

~~~
JumpCrisscross
> _I don 't understand why Apple would buy a headphone company that makes
> pretty but lousy products whose price is only justified by the brand name_

My wager: demographics. Apple's customer base is greying [1]. Beats likely has
a younger centre of gravity. I'd also be willing to bet Apple has less
penetration amongst black Americans than does Beats.

[1]
[http://www.computerworld.com/s/article/9230179/Apple_s_bigge...](http://www.computerworld.com/s/article/9230179/Apple_s_biggest_fans_are_older_consumers)

~~~
mcintyre1994
While I'm sure Beats' younger user base is enough to make this worthwhile for
Apple, I wonder how much they've actually expanded in terms of buying power. I
doubt many young teenagers are spending hundreds of their own dollars on these
headphones, it's the parents who are already pretty much Apple's demographic.

------
k-mcgrady
An important quote from the article:

>> “Could Eddy’s team have built a subscription service? Of course,” he said.
“We could’ve built those 27 other things ourselves, too. You don’t build
everything yourself. It’s not one thing that excites us here. It’s the people.
It’s the service.”

From my usage of the Beats streaming service it stands head and shoulders
above everyone else because of the people it has creating playlists. They are
really fantastic especially when compared with Spotify. Apple could build a
streaming music service but they need the right people to build a good one.

~~~
gareim
Even though Cook said it's not about building it, "it's the people. It's the
service", is $3 billion worth what is essentially an acquihire?

EDIT: Right, it's still a profitable business regardless and I should have
touched on that. But I don't want to see big tech companies acquire just for
profit. They become behemoths that die slow deaths. I want to see Apple
continue to reinvent based on their vision. I don't want them buying safe
businesses. It's the reality of the world, I guess. I just firmly believe that
Apple could have created their own spin on this market for less than $3
billion and beat out Beats.

~~~
panabee
setting aside the streaming service and the profitable hardware, bear in mind
the context if you evaluate the deal purely as a acquihire. apple has about
$160B in cash [1]. $3B for an acquihire is comparable to zynga in 2013 [2]
purchasing some startup for $30M.

[1] [http://www.businessinsider.com/global-cash-reserves-
companie...](http://www.businessinsider.com/global-cash-reserves-companies-
nations-2014-4) [2] [http://seekingalpha.com/article/1919501-zynga-cash-still-
pil...](http://seekingalpha.com/article/1919501-zynga-cash-still-piled-high)

~~~
notahacker
Acquihires are by definition evaluated on the perceived market value of the
team, which is very rarely proportional to the cash reserves of the buyer. The
existence of wealthy suitors like AAPL might shift market values (for _any_
prospective buyer) for tech talent upwards, but no matter how much cash they
have in the bank, AAPL can certainly acquihire top talent in the $30m range if
that talent is showcasing their skills at unprofitable startups rather than
highly profitable brands, in much the same way as they have no need to offer
employees salaries' two orders of magnitude more than comparable level
employees at companies with a mere $1.6M in the bank.

It would have to be seriously impressive talent to be worth $1.6Bn when you
compare it with what Apple paid for _NeXT_...

------
onedev
The amount of people in this thread who are unable to understand the
brilliance of this deal is astounding.

What they bought is not one thing, but all the components that came together
in the right way, at the right time.

* Beats Music, a music service that is truly different from the others and is in my opinion better in many ways.

* Legendary founder of Interscope records Jimmy Iovine (who then ran it for 25 years) as part of Apple management.

* Dr. Dre, enough said.

* The amazing people behind the curation of the playlists on Beats Music.

* A powerful brand, though this part is still a grey area for me. It remains to be seen how they handle the brand.

* A strong command of the market. In 2012, NPD Group reported that Beats had a market share of 64% in the U.S for headphones priced higher than $100. It's likely even higher now.

* Hardware that's flying off the shelves as noted above. They have the opportunity to improve the engineering of this hardware to make a truly great product while retaining the amazing branding.

All of those things came together into one place in one deal. It's incredibly
smart.

~~~
samstave
Apple made 170 Billion dollars last year. They are insane not to try to spend
chump change on the music industry. The own the delivery of sound from that
industry INTO a vast % of the consumers of it. Apple is going to own the
entire experience of media consumption for some % of their customer base. They
will be the label, the distribution, the hardware and the content. A 100%
apple audio feed, all wrapped up in a tight little box tied directly to your
bank account. Every click costs you something.

~~~
onedev
Exactly. You're absolutely right. They will try to control the flow right from
the time artists make the sounds to the time the audio hits the listener's
ear.

Just as they control an app from the time it's written to the time the user
uses the app on their phone (while taking a nice 30% cut of proceeds).

------
malchow
Apple paid ~10% of its $35b 2013 free cash flow* for Beats, a company with a
software-side growth story and actual positive free cash flow of its own
driving investment in the software piece.

Apple: spinning off cash, buying companies that themselves spin off cash.

A delight to see P. Oppenheimer's conservative approach thriving. Financially,
Apple is a thrilling company to watch.

* N.B. That's actual GAAP free cash flow. It is pure cream. What better than to accrete to FCF while acquiring, as noted by @onedev, some terrific assets, personnel, and goodwill. This is a smart and cheap move.

------
bedhead
Poor Logitech, a company I've always had a soft spot for. They used to be the
king of the peripherals and even bought Ultimate Ears for $34 million back in
2008. Their audio business is probably their lowest margin segment and now
Beats gets acquired for almost double Logitech's enterprise value. The power
of brands...

~~~
hiharryhere
Logitech never did themselves any favours. I lost my soft spot for them when
they bought Slim Devices and then quickly ruined the Squeezebox with bloat and
feature creep.

The original Squeezebox was elegant and had so much potential.

------
KVFinn
There's a lot of comments in here about the business case. Beats is undeniably
moving a lot of product. Speaking purely for my personal feelings though this
purchase makes me value Apple less.

While people say Apple is merely overpriced hardware bought because marketing
makes it cool, I think this is wrong, it's also really good hardware. But
Beats is that criticism of Apple come true -- overpriced crap made popular
with marketing. Ironically I don't even mind the sound profile of Beats --
high fidelity cans are too flat for me personally. But even for someone like
me I can get that same sonic effect for a fraction of the price with other
brands.

------
danhak
So, Apple acquires music streaming service lala.com in late 2009 for $80
million and shuts it down unceremoniously.

Less than 5 years later pays $3 billion for Beats electronics, largely for
their music streaming service.

~~~
k-mcgrady
Lala became iTunes Radio AFAIK.

~~~
eghri
Lala was way more than iTunes radio. It had low priced cloud music purchases
(e.g. $0.29 a song), unlimited cloud streaming for MP3's you already owned,
free album listens for 1-2 plays, an integrated streaming player for third
party sites, and more. It was way ahead of its time and competitors, but it
was killed by Apple and used for almost nothing.

~~~
thisisdave
Several of those features sound a lot like iTunes Match.

------
asimpletune
I just want to go on record with an entirely different idea as to why Apple is
buying beats. They're going to make a label.

Why Apple doesn't do streaming: Apple hates committing to something unless
it's absolutely perfect. There are numerous examples, but NFC technology is a
good one that comes to mind. Granted, they've made mistakes, like Mobile Me,
but that was due to poor implementation, rather than immature technology and
infrastructure. A similar problem has been in their way as far music streaming
goes. The obstacle in their path to connecting consumers to content are labels
(the same applies to cable companies and iTV, but that's a different story).
Labels are greedy, difficult to deal with, and a general nuisance who provide
little or no value. Meanwhile, the actual content providers, i.e. songwriters
and performers, view labels as a necessary evil, but no one believes for a
second that needing them is ideal.

The vision: The idea is that Apple is looking to buy Beats to start their own
label so they can cut out the label, who is an unnecessary middleman. My
reasoning behind this is that Beats is a very strong brand, mainly because
it's been run by two very savvy music industry veterans who know how to
"produce", in every sense of the word. They're more of a household name than
any other headphone maker can claim. If any company had the power, skill, and
recognition to pull off disrupting the record industry, it would be beats. The
only problem is they don't have enough money, do you know who does? Boom. It's
as simple as that. Just take a look at this [http://cdn.macrumors.com/article-
new/2014/05/beats-royalty-s...](http://cdn.macrumors.com/article-
new/2014/05/beats-royalty-s..). and tell me, from Apple's perspective, what
the problem is with a music streaming service? The labels get all the money
and the artists get none. All Beats has to do is say, "Boom, we're starting a
label and we own the streaming service, so you can have a 30% cut per play and
we'll keep 70%". If you were an artist and you could literally improve your
earnings by 10x wouldn't you? $248K vs $22K is criminal.

Just imagine, from Apple's perspective, what this would open up? Essentially,
it's total vertical integration, a pipe from artist to audience, unadulterated
by stupid bullshit. For example they could have complete coordination of
everything from the original recording quality of an album to specialized
super high end digital to analog converters in the hardware - from lossless
media formats that were recorded especially for that format to headphones that
are tuned to provide optimal performance. This is a complete bargain and no
ones talking about it. It will serve as a prototype for what Apple would love
to do to the television industry (think Apple acquires HBO, a win win for
both), and they're doing right under everyone's noses because no one can think
big enough. Apple would never, in a million years, purchase a company like
that for so much money if they didn't have a very good idea of how it would
pay off 10x.

And remember, this is the same company that seriously considered becoming a
carrier, in order to launch the iPhone.

~~~
sleepyhead
"Apple hates committing to something unless it's absolutely perfect" Like
Newsstand, Game Center and Passbook? This is the biggest misconception about
Apple. While this is very much the case for their hardware products like
iPhone, iPad, Mac pro and Macbook, it is not the case with software or
services.

~~~
7814317
What is wrong with any of the three you mention? Beyond the lack of support
for them, they have all performed well. Most of the issue is getting third-
parties interested.

I use Newsstand to subscribe to a car magazine from the UK (Top Gear) that
would otherwise cost me >$100US/year to have delivered here. The BBC has done
a great job with their magazine. There are plenty of other magazines and
newspapers that fit in just fine here. But again, I think part of the problem
is that magazines and newspapers overall are a dying industry - why would you
want to read a magazine when you can just visit a website daily/weekly and be
caught up?

Game Center is another that has had limited opportunities to shine. Partly
Apple's fault because they don't integrate with Android, but a beautiful
example of how to use Game Center was the Letterpress game awhile back. I
believe Letterpress was an iOS-only game. If it had been a cross-platform
game, where many developers go now, then GC would have been useless to them.
But the features are there, if a developer decides to use them. The
scoreboards and friend matches and achievements are used in many iOS games as
well.

Passbook is the one that has hurt the most due to a lack of third-party
interest. I personally use the Starbucks card whenever I happen to be want one
of their drinks. There is plenty of anecdotal evidence that the MLB and
airline tickets are also well done. I wish more stores with loyalty cards
would release Passbook apps, but again, where is the desire for your favorite
grocery store chain to create a Passbook enabled app? Hell, most grocery
stores you are lucky to even see an online inventory and this week's sales on
their website.

I don't confuse "perfection" with "third-party participation".

~~~
KVFinn
Oh Gamecenter.

The green-felt casino aesthetic wasn't just ugly it was insulting. The new
toddler bubbles theme is marginally better.

It's unreliable (it fell down repeatedly when Letterpress launched) and to
this day every time I start any game I have to wait at the menu because I
_know_ if I start playing before Gamecenter loads it will lag out during
gameplay. The turn notifications are all over the place, I get one then start
game and where's my turn? Close app, retry, repeat. Maybe one of these times
it will be there? The multiplayer model doesn't handle many different kinds of
games and methods of combinging players so if you don't use similar mechanics
like Letterpress you are often out of luck. Good luck relying on it for
anything with more than 2 players -- half the the time it just bombs out. Or
disconnects players and then freezes the game for minutes before informing the
the other clients. Even basic stuff like Leaderboards went for _years_ without
the ability for developers to manage in any respect whatsover -- so every
single game had a top 100 of entirely hacked scores and was stuck that way.

------
Smulv
It's well established that Apple is one of the pioneers in the digital
distribution of music; however, iTunes hasn't been keeping pace. The portion
of Apple's online services revenue from iTunes has been steadily declining
since Q1 of 2011 [1]. The Beats' headphones product is definitely profitable
and responsible for a big chunk of that $3 billion valuation; however, I doubt
that was Apple's main motivator.

It seems as if Apple is doing this to both acquire the talent involved as well
as the Beats' streaming service. As mentioned in the article Apple usually
prefers the smaller segmented purchases, so I'm guessing Beats approached
negotiations with an all-in-one mindset. As to the why Beats instead of
another streaming service, it has to be some combination of the talent being
just that good or the Beats' streaming service has something that
distinguishes itself from others. What that is I don't know. I've heard about
their mood based playlist feature and find that pretty interesting. I would
like to see what happens when the physiological effects of certain music
genres are researched, and then applied to develop this mood playlist concept
even further. Thoughts?

[1] [http://www.macrumors.com/2014/05/28/beats-key-declining-
itun...](http://www.macrumors.com/2014/05/28/beats-key-declining-itunes-
momentum/)

------
programminggeek
Why didn't Apple just buy MOG when it was a separate thing? Or, why not just
buy rdio now?

This is more than an acquihire or however you want to spin it. I'm sure right
now Beats headphones are printing money and the people at beats are good at
marketing youth culture.

Apple needs the ability to sell expensive tech to teens to be cool. Beats
manages to sell overpriced headphones to teenagers all the time in huge
numbers, even if it doesn't make financial sense. It's like designer jeans or
Oakley sunglasses or... the iPod.

------
jackgavigan
Dammit!
[https://news.ycombinator.com/item?id=7736038](https://news.ycombinator.com/item?id=7736038)

------
nashequilibrium
Bottom Line, if this was beats by Jack Dorsey, everyone would be jumping up
and down but its a black rapper and everyone is confused. The first thing
everyone said was a difference in culture. My experience at a fortune 50
marketing firms let's me know right away that this is a premium brand across
the globe. Their headphones are priced at such a high premium and their brand
recognition as cool and worn by celebrities and top sports stars, across
sporting lines from european soccer to swimmers coming out at the olympics.

Lets cut the bullshit, we all know why everyone is scratching their heads,
because this is not a 22yr old hoodie wearing white hacker. Close your eyes
and picture "Beats by Jack Dorsey" and u will know what i am talking about.
Some fool will post how this is not true, downvote the post et cetera, but it
is what it is!

------
zacinbusiness
The headphones are crap, way too much bass and the build quality is pretty bad
even for low-end headphone. But they have fooled people into thinking they are
a premium product, somehow. Is that why Apple bought them? I hope we don't
start getting "iPad with Beats audio" gimmicks.

------
nostromo
Is music even still important to Apple?

The iPod is in a longterm decline. Low margin music streaming has replaced
purchased mp3s. I think music has changed from the main event in the Apple
ecosystem to a minor attraction.

It seems like Apple is looking backwards and defensively, not forward and
offensively on this one.

~~~
sscalia
It might be hard for someone with an autism-spectrum order to understand, but
normals really love music. It's part of being a human being.

So yes, Music is extremely important. For anyone.

~~~
pauletienney
please ...

------
nikunjk
"It’s going to be accretive in fiscal year 2015" Damn,
[http://recode.net/2014/05/28/tim-cook-explains-why-apple-
is-...](http://recode.net/2014/05/28/tim-cook-explains-why-apple-is-buying-
beats-qa/)

------
balbaugh
I don't understand why everyone has focused so much on the beats headphones
side of the acquisition instead of the fact the this is a way for apple to get
into the streaming market without having to negotiate from the get go with
labels who have been weary of them gaining even more control in the music
market. When they negotiated the deals for iTunes they were not even a blip on
the radar in the eyes of record labels. Sure, the headphones are the immediate
value with the price margin, etc. But, in the end, I see the biggest benefit
being gained from an apple backed streaming service.

REMEMBER, Apple didn't create iTunes, they bought it.

------
6thSigma
I would have never guessed that Apple's largest acquisition ever would be
Beats.

~~~
higherpurpose
Me neither. They could be doing so much smarter acquisition for that money, or
much less, such as buying Imagination, and creating their own fully integrated
SoCs, with both CPU and GPU.

~~~
sanxiyn
They probably are working on their own GPU anyway. They don't need Imagination
for that.

[http://appleinsider.com/articles/13/05/31/apples-graphics-
ch...](http://appleinsider.com/articles/13/05/31/apples-graphics-chip-
development-center-in-orlando-houses-former-amd-intrinsity-engineers)

------
jsz0
I think the key to this deal was the Beats brand. Apple was facing a very
difficult task in trying to modernize/redefine the iTunes Store. They
attempted to bolt on various new things like Ping, iTunes Match, iTunes Radio,
etc but it ended up being a convoluted mess. Too much legacy baggage there. I
suspect Apple will preserve the Beats brand and use it as the launching pad
for all their next-generation media services/products. iTunes Store will
continue on as the place you go to buy things while Beats will clearly be the
place you go to stream things.

------
joshferg
Wonder if Dre will join Apple's Board

------
ladzoppelin
This is smart and as a non-apple user it could suck if Apple starts blocking
cross-platform compatibility. Beats is actually MOG which is an amazing
services that specialized in streaming 320's mp3's. It sounded amazing and I
think it currently sounds better than Spotify at high quality. What sucks is
what do people do if they currently have a beats sub but really don't have
anything to do with Apple.

------
sciguy77
I have to say my Beats completely suck. I've had to get them replaced twice
and I still get these annoying buzzing sounds. Forum-reading has led me to
believe that this is a really common problem. I'm disappointed that Apple
would buy such a crappy product, and pay so much for it.

------
sayemm

      "Still, I stay close to the heat
       And even when I was close to defeat, I rose to my feet
       My life's like a soundtrack 
       I wrote to the beat"
    

\- Dr. Dre, [http://rapgenius.com/412394](http://rapgenius.com/412394)

------
return0
An interesting thing about the deal is that people are coming up with positive
stories and opinions about Beats just to justify the price, believing that
Apple can't ever be wrong. We 'll see about that ...

------
justinlink
This could have a mobile angle too. The HTC One was branded with Beats
speakers and headphones.

Maybe they'll do an iphone with "Beats Audio" rather than wait for another
Android phone to have partnered with Beats.

~~~
salgernon
Ugh. This sounds too much like "Intel Inside" \- although to be fair, the 20th
Anniversary Macintosh (late 1990s) featured a sound system by Bose.

------
andy_ppp
Check out my beats phone yo... Apps, iOS and a different demographic of people
to sell cheaper iOS devices to. Watch the iPhone 5c quietly disappear from
ever being an Apple product, it's not one.

~~~
adamio
What demographic is this? Beats headphones are not inexpensive

~~~
andy_ppp
Cheaply made beats phone will happen and it'll sell more units than you can
imagine. It'll have to be cheaper than the iPhone, not by much. I didn't say
beats headphones were cheap now did I? Keep up.

~~~
adamio
How can beats sell a phone cheaper than its headphones?

------
evo_9
I think the 3B would have been put to better use by buying HBO.

~~~
skinnymuch
I don't see why Time Warner would want to sell its cash cow. Especially for
that price.

~~~
ConnorBoyd
So they buy Time Warner and still have $120B left over

------
lstroud
Will Beats be a wholly owned subsidiary or integrated into Apple?

I would imagine corporate structure will provide the answers on why Apple made
this decision.

~~~
Alphasite_
The only subsidiary Apple has is Filemaker, and its very very hands off, so I
imagine they're going to strip off anything of value and dump the rest.

------
pauletienney
Beats = a bit of cool, a bit of cash, a bit of hardware, a bit of music
streaming, a bit of new, a bit of music = good target for Apple.

------
insky
Are the headphones any good? Stylistically, they look like something that
you'd pick up from Poundland (UK), for a pound.

------
johnohara
The question is not "why is Apple buying?" The question is why is
Geffen/Interscope/A&M selling?

~~~
return0
$3 fuckin billion. Eventhough everyone here goes through their post-hoc
rationalization by claiming that "beats is a great company", it's way way
overpriced here.

------
jaxytee
Depending on the details of the deal, this may make Dr Dre hip hop's first
billionaire.

~~~
k-mcgrady
When the rumour was $3.2bn he wasn't going to become a billionaire despite his
video stating his was - so now the price has dropped he certainly isn't one.

Also - what does Beats have to do with his career in hip hop? Hip hop didn't
make him almost $1bn, an electronics company he co-founded did. It just irks
me every time I see 'hip hops first billionaire'. It has absolutely nothing to
do with hip hop.

~~~
espitia
Hip hop is his origin, therefore he is the first hip hop millionaire. Kind of
like saying I'm the first billionaire from _insert city_.

~~~
k-mcgrady
Yeh I get that, but it's a music genre. It's like a web developer winning the
lottery and being called the first Javascript millionaire. :) /s Sorry I
totally get what you mean it just irks me for some reason and I can't help but
comment regardless of the down votes.

~~~
macavity23
Hip-Hop, love it or hate it, is a lot more than a music genre. It's an entire
subculture that includes a significant proportion of the population,
particularly the young.

------
smackfu
Interesting that they closed the deal and announced it before the WWDC Keynote
on Monday.

~~~
k-mcgrady
It's not really an announcement for a developer conference. Plus aren't these
things typically announced after the markets close (which wouldn't be possible
at WWDC)?

~~~
smackfu
Eh, Apple is Apple. They announced iTunes Radio at WWDC 2013, and that doesn't
have an API or anything for developers.

And I'm not sure about announcing acquisitions outside of market hours. Apple
does plenty of acquisitions that they never announce. Beats would probably
need to announce being acquired if they were a public company, but they
aren't.

------
melvinmt
My 3 billion dollar theory is that they want to shut it down to make room for
their own high-end headphones.

~~~
pauletienney
Mighty Apple erases market with cash. lol

------
saaaaaam
I don't know the etiquette of posting here, but I just wrote quite a long
response to a comment by JumpCrisscross who says that the meat of the deal is
the headphones business rather than the streaming business. I don't know if
that comment best lost in a tree of other comments, so I thought I'd repost it
here. But I disagree absolutely with that point of view.

The meat of this deal is absolutely the streaming service. Apple NEEDS
streaming. I buy an iPhone: I pay $100 to have ALL THE MUSIC ALL THE TIME with
that phone, for the lifetime of the device. Awesome! It's like Amazon Prime
but better.

And Apple NEEDS that; for them to negotiate their own streaming service with
the majors + merlin it would have cost them dear - probably some sort of huge
advance or equity stake (because that is the basis that streaming deals are
done on these day). Apple is too rich to do that, so it's probably cheaper for
them to spend $3bn on a pre pack streaming service than it is to negotiate
their own deals. They are sitting on $170bn in cash. The majors don't budge on
streaming - they want big fat advances, and they want equity. There is NO WAY
that Apple can pay a percentage advance that will satisfy the majors ("we
can't do this for 0.1% of your cash on hand, because that means that next time
someone comes to us, they will want the same terms but they will only have
$100m on hand") and they can't give them equity - because they value their
equity too highly. It's no surprise that this deal is 90% cash and 10% stock,
or thereabouts. The Spotify/Echonest deal was absolutely the reverse - 90%
stock, 10% cash, because the value to Spotify of that defensive acquisition
was worth way more to the Echonest investors in an upside dictated on a future
Spotify IPO. $90m of Spotify stock today turns into a whole lot more in a year
when they float.

Oops.

Anyway.

For the headphones, Beats did $1.5bn in revenue last year. Let's assume that
the average revenue per unit is somewhere in the mid to late hundreds - $150 -
$180 per unit. At $150 - $180 per unit that means they sold somewhere around
8,500,000 pairs of headphones. Gosh. Check my maths there, because I thought
it was insane too.

In 2010 Billboard reckoned the global headphones market was worth about $670m
on 70.8m units sold - so that's about $9.50 per unit. Beats have massively
outperformed this expectation. And thhis means Beats owns 10% of the
headphones market, give or take.

There have been various tears-down/BOM costings of Beats which have brought
them in at about $20 - $30 per pair - or less. A huge part of the cost of
Beats is in the marketing - the endorsements, the adverts (hello, Super Bowl
spot at a supposed $8m) the billboard campaigns, the product placements. None
of this comes cheap. So let's assume that of their 8,500,000 pairs of
headphones they spent maybe $200m - $225m or thereabouts to actually buy the
pieces, and manufacture the cans. Let's also assume that - yes - they made 15%
margin. On revenue of $1.5bn that means they are making $225m profit. So the
manufacturing costs and the profit are about the same - which is fair enough;
a 100% markup is pretty decent. But that means that a HUGE element of the
value of Beats (and a huge element of that $225m profit on $1.5bn sales) is
created in the aspirational value created through marketing - and the
marketing costs LOTS money. Remove that marketing spend, and you have a
business that doesn't look so shiny. If 90% of the value of the headphones is
created by the marketing, then suddenly headphones that can retail at $180 or
so per unit, on a per unit cost of $25 need to drop down and retail at $40 or
so - which, coincidentally, is about the price point for SkullCandy and other
fashion/aspirational headphone brands. So I think the headphones business is
worth about 10% - 15% of what Apple is paying in that $3bn transaction. At
most. Let's call it $450m, to be generous.

So yeah. I really don't think the headphones business is a thing.

I imagine for a while they may either incorporate Beats into a "premium" Apple
headphones range - or they will drop the Beats brand almost entirely and sell
the consumer headphones business off to someone else. Whatever happens, I'd
doubt Apple will be using "Beats by Dre" as a brand. It'll be entirely
integrated into the Apple brand - "iTunes On Demand" or something else.

Whatever they bought, it was not the headphones business. It probably wasn't
the streaming business either - if we assume that maybe the Beats Super Bowl
commercial netted them some more subscribers for the Beats streaming service
and we call it a very generous 200k subscribers, that means that Apple has
paid (once we deduct the $450m for the headphones business) something like
$12750 per streaming user.

Spotify is worth something like $4.5bn at the moment (or, at least, it was
until tonight, before Apple potentially decimated that market) and they have
10m paying subscribers. So that's a cost per user of $450 to buy that
business. Spotify pays out 70% of every dollar of revenue to rights holders,
giving them 30% of their revenue to cover their costs and make a profit. They
say that they will pay out $1bn to rights holders this year. Which means that
they are expecting to bring in about $1.4bn in revenue. So they have $400 to
run their business and make a profit - only, of course, they don't make a
profit. So the 10m subscribers + ad-supported users bring them $1.4bn.

If you want to buy Spotify today, it's going to cost you $450 per subscribing
user.

Let's assume that there comes a point that Spotify has maybe 40m subscribers
and they bring in $5bn in revenue a year. That gives them $1.5bn to run their
business, and maybe at that point they turn a profit. If they return 15% also,
then they're making $225m a year profit. That's $5.63 profit per subscriber
per year. It's going to take a long time to make back the $450 you spent per
user.

The value to the Spotify in buying the Echonest was that nobody else could
have it.

The value to Beats in being bought by Apple is that nobody else wanted it.

The value to Spotify in all of this is that it makes it a three (or maybe
four) horse race: them, Apple and whichever of the remaining players Amazon
buys and bundles into Amazon Prime Instant Music. And then we'll see what
Google does with YouTube Streaming.

For everyone else, it's a race to the bottom: so long as Apple can offer
"iTunes On Demand" for a dollar less than anyone else, they win: they have a
one click route to market, and they have a product that becomes more appealing
to more people by the addition of a streaming service.

Basically, as far as streaming music goes, we're all fucked.

 __

Here are some links to vaguely back up some of what I 've said above. It's
late, though, and I can't reference everything. You can pretty much Google it
all though.

[http://www.billboard.com/articles/news/950594/beats-by-
dre-t...](http://www.billboard.com/articles/news/950594/beats-by-dre-the-
secrets-behind-a-headphone-empire?page=0%2C1)

[http://teksocial.com/socialblog/2012/5/13/exploiting-the-
con...](http://teksocial.com/socialblog/2012/5/13/exploiting-the-consumers-
and-unscrupulous-profiting-an-inves.html)

[http://9to5mac.com/2014/05/13/beats-music-had-
only-111k-subs...](http://9to5mac.com/2014/05/13/beats-music-had-
only-111k-subscribers-in-march-claims-music-blog/)

[http://www.completemusicupdate.com/article/spotify-tops-
ten-...](http://www.completemusicupdate.com/article/spotify-tops-ten-million-
paying-users/)

~~~
nashequilibrium
Why is this comment downvoted, look at the top comment, this is why i hardly
set foot on HN any more, the top comment is some guy talking about a 1991
fight but its the top comment. Sigh!

------
eip
Marketing geniuses that sell mediocre hardware for premium prices. Sounds like
a good fit.

~~~
pauletienney
Actually, hardware is just a part of Apple craft

~~~
eip
Probably a very small part considering that Foxconn actually builds most Apple
hardware.

Apple mostly a marketing company.

------
kerbs
Can somebody humor me that there is a non-zero chance he will be the WWDC Bash
performer?

------
wnevets
this the beginning of the end.

------
izzydata
"Apple, the company that turned digital music into a mainstream phenomenon"

Is this guy serious?

~~~
Osmium
What's uncontroversial about that? The iTunes Store did make (legal) digital
music mainstream. That's not to say it was the first store of its kind, but it
was certainly the first to have widespread success.

~~~
izzydata
CDs are digital music, everyone was listening to digital music before apple
did anything. People were using walkmans long before the iPod.

The point is trying to credit apple for "digital" music as opposed to "analog"
music. That is just absurd. Credit them from making a business out of selling
digital music, but not for making digital music popular.

~~~
jmelloy
I don't think anybody realistically considers a CD "digital".

~~~
__david__
Of course they do, in general—there's nothing analog about CDs. But in this
context it clearly meant "digital downloads".

------
jotm
Two companies that succeeded at selling overpriced, under-featured hardware to
consumers mostly based on the brand name? A match made in heaven. :-)

