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 As expected, Beats co-founders Iovine and rapper Dr. Dre will join
Apple as part of the acquisition of the music streaming and audio
equipment company.
They should prove key in forging relationships with an industry that
historically viewed Apple with suspicion but in recent years has
pressed the iPhone maker to do more on subscription services, a
market expected to eclipse song downloads in the long run.
Iovine's music industry relationships could ease notoriously
difficult licensing negotiations for a future streaming service,
recording industry executives say.
"The ugly truth is that there is such a Berlin Wall between Silicon
Valley and LA," Apple Chief Executive Tim Cook told the Wall Street
Journal in an interview. "The two don't respect each other, don't
understand each other."
While the price tag represents an iota of Apple's roughly $150
billion cash hoard, it marks a significant departure for a company
that for two decades has stuck mainly to acquisitions worth hundreds
of millions of dollars.
The deal is seen as Apple's effort to jump-start an uneven attempt
to make headway in music streaming, the fastest-growing segment of
the market, as iTunes sales decline. Pandora Media Inc <P.N> and
Spotify have raced ahead while Apple's eight-month-old iTunes Radio
has not made much of a dent.
With music downloads in decline, record labels have also put
pressure on Apple to get its act together on streaming. The record
labels hope Apple can turn Beats Music into a strong competitor to
Spotify and other streaming services, sources familiar with the
matter have said.
“Apple created the digital download business and has had an amazing
run, but the industry is going in the streaming service direction,"
said Daniel Weisman, a manager for Roc Nation who represents bands.
The transaction is expected to close in the fourth quarter, Apple
said on Wednesday. Shares in the company stood largely unchanged in
after-hours trade.
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GAINING COOL
Apple is also gaining a line of high-end headphones popular with a
young urban demographic, bumping up its "cool" factor, analysts have
said. But industry executives say the company was most impressed
with Beats' five month-old music service.
The market as a whole is burgeoning. Streaming subscriptions jumped
51 percent in 2013 to $1.1 billion, out of $15 billion spent on
music, according to the International Federation of the Phonographic
Industry. Meanwhile, downloads slipped 2.1 percent.
The other prize is Beats' co-founder himself. Iovine, 61, is best
known as the co-founder of Interscope Records, a rap music pioneer
that branched out to include acts like Lady Gaga and U2.
"He founded, and for more than 20 years has led Interscope, a label
that has consistently been in the forefront of the music business,"
Lucian Grainge, chairman of Universal Music Group, said in a
statement on Wednesday. "We ... look forward to enhancing our
partnerships with Apple and Beats for many years to come."
(Additional reporting by Avik Das in Bangalore; Writing by Edwin
Chan; Editing by Sriraj Kalluvila and Eric Walsh)
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