It has been reported that Apple is interested in purchasing Beats, the company made famous by Dr. Dre, for a summly $3.2 billion. While this may seem like a lot, in reality it’s only 0.6% of Apple’s market cap. Many have condemned the move, believing that Beats will add very little value to Apple. One of the critiques of the this deal is that the sum rumored to be paid is the largest the company has ever paid. In addition, Beats only made $450 million in profit last year. Approximately seven times less than what Apple is rumored to offer. But that is not exactly what Apple is after. Jimmy Iovine is rumored to be moving his office to Apple. A founder and creator of Beats By Dre, Iovine’s influence is valuable to Apple.
Beats has become a dominant force in speaker quality and Apple is looking to benefit from this. By buying Beats, Apple will be free to integrate the speakers into all of their different technologies. From iPhones to Macbooks Apple will be able to upgrade their own products while also selling the headphones and speakers on their shelves. According to the NPD Group, Beats has an estimated 60% of the market shares for high-end headphones. Bringing such dominating speakers into such a viable company will only further the argument for people to buy Apple products.
The main reason for Apple’s soon-to-be acquisition of Beats however, most likely has to do with their interest in obtaining Beats music streaming service. Similar to operations like Spotify, the Beats Music app allows subscribers to stream unlimited music for a monthly fee. Apple’s iTunes sales figures have been slowly going downhill and their radio app has done little in terms of significant revenue. Acquiring an already successful music streaming service will allow Apple to break into the Android market without the speculation that the company is willing to work with that platform. The thought is Apple will probably keep this service separate from the Apple brand and use it to improve their own iTunes Radio service.
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