tim_cook_3

Asa Mathat

Media


If Apple were Google or Facebook, its $3.2 billion deal-to-be for Beats wouldn’t be that big of a deal.

Those guys drop billions all the time. We just don’t blink anymore.

But Apple’s Beats move is totally out of character, and causing all kind of twitching. What is Tim Cook thinking?

As I reported last night, Apple seems more interested in Beats for its streaming service than its headphone business. But just saying that doesn’t answer the questions and objections that lots of reasonable people have.

Since Apple isn’t answering them — and who knows if they ever will, because Apple is Apple — I’ve tried imagining what they might say.

As it turns out, we’ll have top Apple executives, including Eddy Cue, who runs Apple’s media business, onstage at the Code Conference at the end of the month.* Maybe they’ll talk then. For now, let’s pretend:

$3.2 billion is a crazy amount of money for a streaming music company! You guys could have bought Rhapsody and Rdio for that much, and had (at least) a couple billion left over.

Yup! Then again, Spotify was valued at its last round at $4 billion, and thinks it can IPO. So its investors would want at least $8 billion for that one.

Here’s another way of looking at it: Beats’ headphone business generates more than $1 billion a year in sales. If you want to argue that a 3x multiple for that business makes sense, then Beats Music costs … nothing!

But anyone can build a streaming music service! You don’t need to buy one at all! Google didn’t, and it launched Google Play Now All Access Absolutely All The Time Anywhere Whatsoever or whatever it’s called last year. It’s really no big deal.

Yup! Then again, we haven’t had much luck building music services since 2003, despite the fact that we ran the world’s most dominant digital music store. Ping is dead, no one cares about iTunes Match, and iTunes Radio has had little impact. So fresh blood isn’t a terrible idea. Jimmy Iovine has a pretty good touch with talent, and Ian Rogers, the Beats Music CEO, might be nice to have onstage at our product events. We just need to get him to put away those Android handsets he uses.

And even if this deal closes, it doesn’t mean you own anything! The value of a media service comes from its licenses — and the ones Beats has won’t carry over to you guys when you buy Beats. That means you have to sit down with the labels and hammer out new deals. What if the labels don’t want you in the streaming business, because it will threaten their download sales?

Yup! We will have to renegotiate. Some people think this will be a real problem — or at the very least, that the labels will try to extract concessions. Then again, the labels tried this with us last year, when we wanted to launch iTunes Radio. And we got what we wanted in the end. Because we’re Apple, and they’re guys who still make almost half their money selling CDs.

Also remember that Universal Music Group, the world’s largest music label, invested in Beats and stands to make several hundred million from the sale. They could use that cash, so they’d like to make it work.

Why do you have to have a streaming music service, anyway? It’s not 2003, or 2008, and the whole point of renting music from the cloud means there’s no more lock-in. All this stuff works on all the devices. You’re not going to buy an iWhatever because it works with Beats, and Beats is still going to work on Android, even after Apple buys it. And it’s not like you guys care about the revenue this thing could generate.

You are handsome, and this is a smart point. I don’t know. Maybe we can make a music service a differentiator, by using it as a real loss leader and subsidizing a big chunk of the $10 a month subscription fee for Apple hardware owners. Buy an iPhone 6, get a year of free music.

The other argument is that we would rather control a service that’s (potentially) important for our customers, instead of ceding control to someone else. On the other hand, there are lots of important apps and services we don’t control. We haven’t gone out and built our own version of Netflix, for instance.

What’s that? You say Netlifx’s market cap is below $20 billion? I wonder what kind of premium we’d have to pay for that one …

Update: Logic aside, this is by far the best acquisition video since the YouTube guys sold to Google. Here’s Dr Dre, caught on camera by actor Tyrese Gibson, via Facebook. There is considerable celebratory cursing, if that’s an issue at your workplace.

Update: Alas. Too good to last.

Another Update! Internet, you did not let me down.

* The Beats guys will be onstage at Code, too. What excellent timing for us and our guests!




7 comments
zato
zato

The video says why Apple and Beats are joining forces. This is an excellent deal all around, inspiring! Congratulations to all.

Pinchuk
Pinchuk

"Apple buys smaller technology companies from time to time, and we generally do not discuss our purpose or plans"

Tom Tomerson
Tom Tomerson

This is simple.  Apple is out of ideas.  I bet you will hear this at the next release.  "Apple revolutionized how you see the world with our "Retina" display.  Now Apple is doing the same thing for your ears."  Retina is a branding gimmick and so is Beats.  They are perfect for each other. 

cxy
cxy

The Beats acquisition makes sense from the brand perspective.


The iPhone 5C was an ineffective foil against cheap Android smartphones. Apple needs to compete in that arena without diluting their premium brand. 


Acquiring the Beats brand makes it possible for Apple to sell an apologetically plastic $99 iOS smartphone on Boost or Cricket MVNO. They could even create their own Beats MVNO.

Angus Matheson
Angus Matheson

I've used first ITunes Genius then iTunes radio. And they are terrible. I wanted them to work. The should work great, they know what I like, having access to the 12,000 songs I own. Every time I do it I end up a few so songs in saying why was that song there. Pandora is amazing. Songza put together great themed playlists. And Apple nothing. Even after they did iTunes Radio and really wanted to. I guess the acquisition makes sense in the theory if you tried something and failed, don't just do the same thing again and again. Do something different. And the truth is very clear that streaming is the future.

DED
DED

@Tom Tomerson  You are aware that Apple's Retina Display on iPhone 4 absolutely destroyed the fragmented, non-multiple of various screen sizes/resolutions that Google/HTC/Motorola had introduced 6 months earlier, right? 


Do you remember who sold the most premium phones in 2010? 

How about 2011, 2012 and 2013? It was Apple. Despite a variety of attempts my Android licensees to market big screen phones with crazy high resolutions.  

DED
DED

@cxy  what about iPhone 5c was "ineffective," considering that it outsold every premium Android flagship, all Blackberries, and all Windows Phones combined throughout its launch quarter?


And when Apple announced that most new iPhone 5c customers were coming from Android, were you not paying attention?  

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