We’ve been seeing it all over the place for the past week and a half. It all started on May 9th. Huge media outlets like USNews and others broke a huge story of a big acquisition Apple was planning. The big story was that Apple was planning to buy Beats Electronics. I know, you may be thinking that huge companies acquire the smaller guys all the time; why is this big news? Well, there are several reasons. So, let’s jump right into the story!
The Size of the Deal Is Not the Norm for Apple
In the tech industry, it’s not uncommon to see multi-billion dollar companies like Google and Facebook throw billions of dollars into acquisitions of new entities. Although apple is a huge tech giant, they aren’t known for making tech giant-like acquisitions. However, as The Wall Street Journal reports, if the deal goes down like it’s expected to, this would be the largest purchase in Apple history. So, what’s the number? What’s Apple willing to pay for Beats? The proposed deal suggests that Apple will pay 3.2 billion dollars! That’s huge for a company that hasn’t spent more than 404 million dollars on acquisitions in the past.
The Sale Helps To Usher A New Billionaire Into The Club
If this sale actually does happen, and Apple does pay $3.2 billion for Beats Electronics, they will help to create a new billionaire! Beats Electronics was founded by legendary music icon Jimmy Iovine and rap icon Dr. Dre. According to data compiled by Bloomberg, Iovine currently owns 25% of Beats Electronics. So, the sale of the company at the proposed price of $3.2 billion would end up adding $800 million to the music icon’s net worth. Adding the $800 million to the millions Iovine has already accumulated through producing music, the proceeds of the sale will push his net worth past the billion dollar point!
Why Would Apple Even Want To Buy Beats?
It’s kind of funny if you really get into the story. I don’t think Apple actually wants to buy Beats Electronics. I think it’s more accurate to say that Apple has to buy Beats! So why is that funny?
Just over a decade ago, Steve Jobs pulled some of the most amazing negotiations in music history off. He went to major music executives and gave them one option. That option was to sell singles on iTunes for $0.99. Although music execs didn’t like the idea of selling the music for such a low cost, they felt like they were backed into a corner and had to do it to keep sales consistent for their artists.
Here we are 10 years later and the tables have made a full 180! This situation is one where Apple is being forced to make an investment that they know may not actually be a successful one. The funniest part is that Apple’s being forced to make that decision by the same people he Jobs forced into selling singles for under a buck!
How Is The Music Industry Forcing Apple Into The Sale?
Throughout the past few years, we’ve seen a major up rise in streaming music. With companies like Pandora and Spotify offering free streaming musing, growth of the paid iTunes sales haven’t been what they could have been if iTunes remained to by the online music leader. Because of this, Apple has to do something to win back online music listeners.
Beats Electronics is definitely well known for its high end musical hardware like headphones. However, headphones aren’t the only bread winner for the company. Beats consists of several different moving parts, one of them being Beats Music, an online music streaming service.
The bottom line is that Apple is years behind on the streaming music trend. In the tech industry, if you’re years behind, you might as well be decades behind. So, Apple is looking at Beats Music as a way to tap into the online streaming industry and once again become the online music giant they were just a few years ago.
Because iTunes music downloads have been in decline over the past couple of years, major music executives are now putting pressure on Apple to get into streaming. Ultimately, that pressure combined with the opportunity to buy Beats is leading Apple to make a rash decision.
How Are Investors Taking the News?
If you look at the Apple stock chart for last week, it was one heck of a roller coaster. The week seemed to start flat, but as talks of buying Beats became more and more serious, investors started to get worried. Toward the middle of the week, we noticed downward trends in Apple stock prices. However, as more and more media outlets portrayed the acquisition of Beats as a good thing, investors seemingly got comfortable with the idea and we saw an incredible spike start Thursday morning, allowing Apple to end the week strong.
Although it’s going to take a lot of innovation and monetization to turn a streaming music player into a profitable 3.2 billion dollar investment; it seems as though Apple investors are now confident that the company can accomplish the goal. I’ll be watching this move closely over the next week. Come back next week for Market Monday with Josh to find out if Apple did indeed pull the trigger on this acquisition, and if so, how everything went down!