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Apple Reportedly Betting $3.2B on Dre's Beats
Posted May 9, 2014
Apple Reportedly Betting $3.2B on Dre's Beats
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By Jennifer LeClaire. Updated May 9, 2014 11:21AM

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Dr. Dre is already rich, but he may be about to get a lot richer. Apple is reportedly buying his Beats Electronics company for $3.2 billion. Reuters cited “two people with knowledge of the matter” in its report that suggests the company’s are “hashing out details.”

Although the deal could still fall through, Reuters’ sources said Apple has been in the market for a subscription-based music service to beef up its iRadio ad-based offering.

Dre launched Beats in 2008 with Jimmy Iovine, chairman of Interscope Geffen A&M Records. Beats Electronics includes Beats by Dre headphones, earphones and speakers, Beats Audio software technology, and a streaming music service called Beats Music.

Dramatic Impact

We caught up with Roger Entner, principal analyst at Recon Analytics, to get his take on the rumored sale. He told us the headset business would be the most attractive -- and important -- part of the buy.

“Beats Electronics basically transformed the high-end music device business. Before Beats, there was Bose and a couple of small players,” Entner said.

“The industry was struggling to get people to spend $20 on a headset. Dr. Dre’s Beats came along and now everybody wants to spend $200-plus on headsets," he said. "That dramatically expanded the market, and especially for smartphones that have great music.”

Beats Music, Too

Entner is not as excited about the possibilities for the Beats Music service because Apple could create that type of platform on its own. It’s nice to have, he said, but there’s nothing revolutionary about programming a subscription service feature or even creating curated music lists from various artists.

Beats Music just launched in January and runs $9.99 a month. The service is available on iOS, Android and Windows Phone and online. Beats Music has a catalogue of 20 million licensed songs from all the major labels, including Universal Music Group, Sony Music Entertainment, and Warner Music Group. Independent labels are also in the mix.

Beats Music also features a collection of editorialized playlists from music brands like Pitchfork, Rolling Stone, DJ Mag, Country Weekly, and Hot97/Power 106.

Hand Over Fist

“The headset is a natural expansion of Apple’s business,” Entner said. “This integrates and enriches the whole mobile consumption of content.”

Indeed, Beats adds an important component to Apple’s ecosystem and forwards the company’s integrated hardware and software philosophy. But is it worth the rumored $3.2 billion?

“As far as the price, it’s three years of sales,” Entner said. “It’s a little bit rich but it’s about the time to market. When you make money hand over fist you can afford to spend.”

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