The Apple/Beats Electronics deal is now official, and Apple says it will spend up to $3 billion to buy the headphone maker and streaming music company.

Why?

Because Apple likes the businesses Beats has already built, and wants to make new stuff with the help of its employees, says CEO Tim Cook. “We could build about anything that you could dream of. But that’s not the question,” he said in an interview with Re/code. “The thing that Beats provides us is a head start, and it provides us with incredible people, kindred spirits.”

Apple says it will keep the Beats hardware brand intact, as well as the Beats Music streaming service. It also says Beats Electronics co-founders Jimmy Iovine and Dr. Dre will join the company as full-time employees.

Apple says the deal will close by the end of its fiscal year, which means by the end of September. It says the deal will be accretive in its next fiscal year. But Cook says the economics of the deal are secondary to the potential it generates for Apple’s roadmap: “The instant that this deal is approved, we can begin working on the future together. And I believe that that future is better than anything either company could build on its own.”

This is a deal that has confused most people outside of Apple’s Cupertino headquarters, because it is very un-Apple-like. While multi-billion dollar deals are now common for the likes of Google and Facebook, Apple has never made an acquisition of this size.

And when it has bought other companies, Apple has folded its purchases into Apple. For now, that’s not the case here.

The deal also means that Apple will operate a subscription music service, which is a business former CEO Steve Jobs had never been interested in. But music download sales, which had helped fuel Apple’s astonishing comeback a decade ago, have now stalled. And some music buyers, at least, seem interested in paying a monthly fee to rent as much music as they want.

Beats Music CEO Ian Rogers will now report to Eddy Cue, the Apple executive who runs the company’s media business, as well as its cloud services.

Please join us later today for an interview with Iovine and Cue at the Code Conference.





Here’s the full press release:

Apple to Acquire Beats Music & Beats Electronics

CUPERTINO, California—May 28, 2014—Apple® today announced it has agreed to acquire the critically acclaimed subscription streaming music service Beats Music, and Beats Electronics, which makes the popular Beats headphones, speakers and audio software. As part of the acquisition, Beats co-founders Jimmy Iovine and Dr. Dre will join Apple. Apple is acquiring the two companies for a total of $3 billion, consisting of a purchase price of approximately $2.6 billion and approximately $400 million that will vest over time.

“Music is such an important part of all of our lives and holds a special place within our hearts at Apple,” said Tim Cook, Apple’s CEO. “That’s why we have kept investing in music and are bringing together these extraordinary teams so we can continue to create the most innovative music products and services in the world.”

“I’ve always known in my heart that Beats belonged with Apple,” said Jimmy Iovine. “The idea when we started the company was inspired by Apple’s unmatched ability to marry culture and technology. Apple’s deep commitment to music fans, artists, songwriters and the music industry is something special.”

Iovine has been at the forefront of innovation in the music industry for decades, and he has been an instrumental partner for Apple and iTunes® for more than a decade. He has produced or collaborated with some of the most successful artists in the history of the iTunes Store®, helping make it the world’s number one music retailer. Iovine and Dr. Dre are sound pioneers, artists and entrepreneurs.

Beats Electronics has brought the energy, emotion and excitement of playback in the recording studio back to the listening experience and has introduced an entirely new generation to premium sound entertainment. Beats Music was developed by a team of people who have each spent their entire career in music and provides music fans with an incredible curated listening experience.

“Music is such an important part of Apple’s DNA and always will be,” said Eddy Cue, Apple’s senior vice president of Internet Software and Services. “The addition of Beats will make our music lineup even better, from free streaming with iTunes Radio to a world-class subscription service in Beats, and of course buying music from the iTunes Store as customers have loved to do for years.”

In just five years since launch, the Beats “b” has become the brand of choice in the music and sports worlds, and is the market leader in the premium headphone market. Music superstars including Lady Gaga, Lil Wayne and Nicki Minaj have designed their own customized Beats headphones and speakers. Fashion designers and street artists such as Alexander Wang, Futura and Snarkitecture have collaborated on special limited products, while renowned athletes including LeBron James, Serena Williams and Neymar use Beats as a critical part of their training and game day process. Beats has quickly become part of pop culture in the US and with the acquisition the Beats product lineup will be offered in many more countries through the Apple Online Store, Apple’s retail stores and select Apple Authorized Resellers.

Subject to regulatory approvals, Apple expects the transaction to close in fiscal Q4.

Formally established in 2008 as the brainchild of legendary artist and producer Dr. Dre and Chairman of Interscope Geffen A&M Records Jimmy Iovine, Beats Electronics (Beats) comprises the Beats by Dr. Dre family of premium consumer headphones, earphones, and speakers as well as patented Beats Audio software technology and streaming music subscription service Beats Music. Through these offerings, Beats has effectively brought the energy, emotion and excitement of playback in the recording studio to the listening experience and has introduced an entirely new generation to the possibilities of premium sound entertainment.

Beats Music is a subscription streaming music service that focuses on providing a personalized music experience for each user through a unique blend of digital innovation and musical passion. Programmed by a trusted team of well-respected music experts with over 300 years of experience across all genres, Beats Music delivers the right music for any situation, any time, and any preference, personalized to your tastes. The result is an artist-friendly digital music service that does more than simply offer access to music, but one that establishes an emotional connection to it as well.

Apple designs Macs, the best personal computers in the world, along with OS X, iLife, iWork and professional software. Apple leads the digital music revolution with its iPods and iTunes online store. Apple has reinvented the mobile phone with its revolutionary iPhone and App Store, and is defining the future of mobile media and computing devices with iPad.




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