Apple (AAPL) confirmed it will buy Beats for $3 billion in the company’s largest acquisition to date. The move is an effort by Apple to expand its reach into streaming-music as iTunes downloads slow. Apple’s own streaming service, iTunes radio, has yet to make much of a dent in the market.
Beats brings its own streaming service, as well as co-founders Dr. Dre and Jimmy Iovine. Yahoo Finance Tech Reporter Aaron Pressman says the subscription service is a key piece of this deal. “iTunes is a mess,” says Pressman. “iTunes Radio – it has a lot of users - but financially, it’s done nothing; it hasn’t driven any music sales at all.”
Pressman believes Apple needs Beats to be relevant again. “Beats is something that’s coming out of a much cooler, more in-tune-with-young-people place,” he says. “Once you get Apple’s power behind that, that’s a good way to get them stepped-up into the music business as it is now, today, where kids are listening to streaming music more.”
Critics have balked at the $3 billion price tag, but Pressman says the Beats headphone business helps take the sting out of the eye-popping number. “The cash coming in from the headphones helps ease the pain of the $3 billion price,” he said. “That’s only about two-times the revenue of the headphone business alone.”
Bad news for Pandora and Spotify
Yahoo Tech Reporter Aaron Pressman says this deal is not welcome news for Pandora and Spotify. “If you’re Pandora or Spotify - which maybe was heading towards an IPO - if you’re an investor in those companies, you’re pretty bummed out,” said Pressman. “This is not good for you.”
Pressman did say each service has its own merits and is growing. Spotify, for instance, is much bigger outside the United States. “I don’t think anybody’s dead, but it’s not a happy day.”
- Investment & Company Information