Apple Inc. is close to buying headphone maker Beats Electronics for US$3.2bn. Although Apple had repeatedly denied rumors being printed over the last month or so by the Wall Street Journal and the Times, the price of Apple stock rose a stunning $1.75 per share on Friday, May 9, 2014. Beats, which is also starting up a streaming music service, will be Apple‘s largest ever acquisition. Reliable sources tell me the purchase will be officially announced sometime next week amidst much ballyhoo.
Founded by the rapper/producer Dr. Dré and veteran pop music producer Jimmy Iovine, Beats Electronics markets its products under the brand name ‘Beats by Dr. Dre’ and competes with headphones made by Skullcandy, Sennheiser and Bose. All save the Sennheiser receive lower consumer critical ratings, but Beats are hugely popular with the African-American youth market for their design.
On the surface this seems like a very un-Apple-type acquisition. The previous rules of the tech-era takeover game insist that you only buy out someone who owns access to something you don’t have and new customers. My personal guess after discussing this with an old friend at Warner Brothers Records is that – like German scientists in World War II keeping the jet engine and the V2 rocket under wraps so the fast advancing Soviet Red Army couldn’t get it – Beats have something very precious and innovative under wraps, or else a product they need even bigger bucks to do more research upon.
All of that might be wistful thinking, however. It may be as simple as a plain old numbers game. These may be hard times for some, but kids of all ages are spending tens of millions, possibly hundreds of millions on headphones. Cheap to make and accepted as having a short shelf life, most consumers tend to shrug when they break, throw them into the garbage can and go off and purchase a brand-new pair.
The pundits whose bread and butter it is to Apple-watch are also speculating on social media that the company which single-handedly cut down on commercial CD sales and destroyed record stores and tens of thousands of radio stations, having upended the music industry through iTunes, is now going to start up a sort of Super-Spotify-like, on-demand music store.
The other intangible is the pulling power of Doctor Dré himself. Truly straight out of Compton, André Romelle Young was born in the Los Angeles ghetto neighborhood on February 18, 1965. A major part of the seminal gangsta rap scene in the LA hip-hop culture in the eighties, Dré founded NWA (Niggaz with Attitude) with rapper/producer Easy E, managed by the infamous Suge Knight. Suge and Knight formed the juggernaut record label Death Row Records and changed the record industry forever. Nowadays, partnered with Jimmy Iovine, Dré has gone from nurturing artists like Eminem and 50 Cent to a big-time entrepreneur.
Long dissociated from the likes of Suge Knight, Dré has since found the ultimate establishment partner in H.P (Hewlett Packard). By the 2009 Fall season, HP and Dr. Dre teamed up to release Beats By Dr. Dre with the sale of all HP laptops and HP and Dr. Dre announced the HP ENVY 15 Beats computer for $2,299. “We’re trying to eventually be second to Apple. And I don’t think that’s a bad position,” Dre told The Fader music website, according to Reuter’s in October 2009.
Interestingly, however, Apple’s founder, Steve Jobs, clearly had a relationship going on with Dré for at least a decade (there’s a video that comes from an Apple party from 2004 hosted by Jobs). The iPod had to be good, according to the good Doctor because it meant “no more carrying duffel bags full of CDs!”