Apple has confirmed that it is paying USD3 billion to buy the Beats headphone and music streaming company. As part of the acquisition, Beats co founders Jimmy Iovine and Dr. Dre will join Apple.
Subject to regulatory approvals, Apple expects the transaction to close in fiscal Q4.
Apple’s lengthy statement about the deal included lots of comments by both CEOs about how wonderful the deal is, but neglected to explain why Apple is buying the company, nor what it plans to do with it.
Apple’s CEO Tim Cook said the deal would allow the firm to “continue to create the most innovative music products and services in the world”.
He didn’t elaborate.
There is however a lot of speculation that Apple, which once dominated the digital music sales market has lagged newer rivals that offer music streaming instead. Beats, which is best known for high-priced, fashion brand headphones also has its own music streaming service.
The key question is whether Apple, which has never supported a 3rd-party brand in its services will be willing to retain the Beats brand, which is the company’s main asset as it goes forward.
This is not Beat Headphones’ first attempt at a deal with a phone company either.
Taiwan’s HTC bought a 50.1% stake in the headphone company in 2011 for US$300 million in an attempt to bolster its reputation for high quality speakers in its smartphones. The deal proved unsuccessful though, and HTC sold half the stake back a year later for USD150 million.
Late last year, it sold the rest back to the company for USD415 million, valuing the firm at around USD1.2 billion.
In hindsight, had HTC held onto that stake, it would have been worth nearly a billion dollars — a windfall for the struggling smartphone manufacturer.