Update: Apple announced the $3 billion deal on May 28th.
A well-placed source has confirmed rumors that Apple’s acquisition of Beats “is happening” but was close to falling apart multiple times. The source said with “70% certainty” that Apple’s planned multi-billion-dollar acquisition of headphone maker Beats will go through. But Apple isn’t buying Beats for the technology; it’s buying the talent.
“They want Jimmy and they want Dre,” said the source. “He’s got fashion and culture completely locked up.”
The planned acquisition, pinned at $3.2 billion by the Financial Times, has stumped Apple pundits who are anything but impressed by Beats’ offerings. However, the source believes the FT story is accurate and that Tim Cook’s recent behavior — hiring Angela Ahrendts from Burberry, former Leica engineer Ari Partinen, Nike’s Ben Shaffer, and former CEO of Yves St. Laurent, Paul Deneve — is indicative of an effort to stock the Apple larder with culturally aware and highly skilled managers.
But why Beats? Founded in 2006 by entrepreneur Jimmy Iovine and Andre Romelle Young, aka Dr. Dre, the company released their first product in 2008 with the launch of the Beats by Dr. Dre Studio Headphones. The company was last valued at $1 billion after phone maker HTC sold the brand back to the founders in September 2013.
While reviews of Beats hardware have been mixed, the company is valuable for the “record-label-in-a-box” that the Iovine and Dre relationship affords. Iovine is known as a pit bull in the realm of media negotiations and this move will give Apple youth cachet thanks to the brand and business chops with the Iovine/Dre mix. Iovine will be most valuable in negotiations with record labels in iTunes acquisitions. Another source, interviewed by Josh Constine, also believes this musical expertise will allow Apple to run a streaming music service concurrent to its iTunes sales. The move, then, is far more than just a hardware acquisition.
Rumors in Asia also point to previous moves by Samsung to buy the Beats brand, a deal that fell through “earlier in the year.”
Apple’s efforts, it seems, will bear more fruit despite the delay.
“The deal hasn’t fallen apart yet,” the source said.