January 10, 2018

With Jimmy Iovine Leaving, A Look Back At What Apple Got For Its $3 Billion Purchase Of Beats

Jimmy IovineReports from all over the Internet suggest that Jimmy Iovine will be leaving Apple shortly after the stock he received in the company’s 2014 acquisition of his previous enterprise, Beats Electronics, vests in August. There’s been no denial or even suggestion that the story isn’t true, so it prompts a retrospective question – What exactly did Apple get for its $3 billion purchase of Beats?

There were actually three major assets that Beats had to offer. The first was the Beats headphone brand, which at the time was doing gangbuster business despite questions of product quality (although this came mostly from music pros and not consumers). Second was the infrastructure of the company’s in-house music streaming service, Beats Music. Last was the executive talent in co-founders Jimmy Iovine, legendary hip-hop producer Dr. Dre, and Beats Music president Ian Rogers.

It was obvious that the Beats Electronics product line wasn’t much of an attraction, since the engineering was inferior to Apple’s. Plus, even though Beats was the market leader in headphone sales, it was a niche market that was nearing saturation, so this obviously wasn’t the reason why Apple wanted Beats. Today Beats Electronics operates as a stand-alone company with some of Apple’s wireless technology incorporated into a few of its products, but none of Beats technology is employed in Apple products.

Beats Music was a little more intriguing though, since it was already launched in January of 2014 and allegedly had a million subscribers (there’s some dispute over this number, and rumor has it that Apple actually altered the deal to a lower amount when it found the subscriber count didn’t match the marketing hype). Apple had yet to launch Apple Music (it would do so about a year later), so the Beats Music infrastructure might have been attractive. That being said, Apple already had some of the infrastructure in place with its iTunes Radio service, which was launched in June 2013 and eventually folded into Apple Music in 2016. There’s some speculation as to how much the Beats Music back end played a part in Apple Music, but at the very least it helped speed the launch of the service in September of 2015.

That leaves the executive team. Many in the industry (myself included) speculated that this was the major reason that Apple purchased Beats to begin with. Iovine and Dr. Dre were riding high in terms of their influence in the music business at the time, so getting them in the Apple fold looked like a good way to quickly make up ground against rival Spotify, which already had a big head start in establishing the streaming business.

That bet doesn’t look like it panned out too well though as we look back. Exclusives with artists were popular at the time, and the company might have thought that Iovine and Dre could serve as a direct conduit to major artists in order to scoop Spotify. It’s possible that they did at first, but both artists and labels soon soured on the idea and exclusives with streaming services would be all but dead. Almost from the beginning, Dre disappeared from sight and seemed to have little to do with the company, perhaps precipitated by sexual misconduct allegations. Is he still connected to Apple? No one seems to know.

As I stated in a previous post, Ian Rogers was the operational brains behind Beats Music who had his finger firmly on the pulse of the consumer. At Apple he was put in charge of iTunes Radio, a position that seemed beneath his talents. In 2015 he left the company to become Chief Digital Officer for the fashion brand LVMH.

Which brings us to Iovine. His introductory rambling unrehearsed presentation at Apple’s 2015 World Wide Developers Conference (he would not be let on stage again during future Apple presentations) proved that he didn’t exactly fit into the company’s straighter-laced culture. Then he was forced to issue an apology after a statement about girls and women on a CBS This Morning interview, again not fitting with Apple’s public image. As far as his contacts with labels and artists, that’s something that Apple had firmly in hand before he arrived. Besides, do you actually think it’s difficult for the largest company in the world to get in touch with a label or artist?

In recent months Iovine has done a number of interviews outlining the difficulties of the streaming industry instead of being a champion for it or Apple Music. The fact of the matter is that the music business is in the middle of a revenue revival and it’s all thanks to streaming, despite his doom and gloom assertions. Things may not be as rosy as they seem, but they’re certainly not as bad as Iovine outlines either.

So when we look back at Apple’s purchase of Beats, it was a good deal but not for the reasons that everyone thought at the time. The Beats Music infrastructure now looks to be important to the development of Apple Music, which came from nowhere to become the #2 music service in almost no time at all. Beats Electronics was what everyone believed it to be, while its executive talent wasn’t as integral to Apple’s future as predicted.

Bottom line, if Apple had the chance to do the deal all over again, I think there would be no question that it would do it all day long (but I bet for less money).

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