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Dre, Beats, headphones and possible cultural domination

Beat by Dre headphones.

The Carlyle Group, a private-equity firm with $180 billion under management, is investing in Beats by Dr. Dre. That’s the popular brand of headphones and other audio gear founded by hip-hop artist and producer Andre Young, a.k.a. Dr. Dre, and music mogul Jimmy Iovine.

Carlyle’s investment is reportedly worth $500 million, though neither company would confirm that figure or comment for this story. Carlyle’s involvement follows the exit of Taiwan-based smartphone-maker HTC Corp., which sold its $265 million stake in the company back to the founders last Friday.

Carlyle has previously taken on consumer brands such Dunkin’ Brands and AMC Entertainment. Carlyle managing director Sandra Horbach said in a statement that: “We are confident that Beats will continue to drive innovation and growth in the premium audio accessory market, particularly as the proliferation of smart phones and tablets stimulate increased consumption of digital media.”

Most consumers of digital media, especially music, listen on middling-quality car speakers, earbuds or headphones that cost under $100.

But Frank Wells, president of the Audio Engineering Society and editor of Pro Sound News, says that’s probably not what music fans want for listening to the latest club sound, such as hip hop or electronic dance music.

“The Beats headphones are designed to give somewhat of that visceral bass-thump experience that moves your body,” says Wells, “the physical feeling of it rattling your head.”

Beats already controls more than half the premium headphone market in the U.S., according to Ben Arnold, director of industry analysis and consumer technology at the NPD Group. Beats range in cost from $100 to $400.

Arnold says increasingly, the big growth potential for the company isn’t head-rattling club-goers.

“Now consumers are watching movies on HBO Go and Netflix,” says Arnold. “People are playing so many games on their mobile devices. We see that growth really propelling the headphone market.”

Arnold says people spend so much time consuming media this way, they increasingly demand a high-fidelity listening experience.

He says Beats is also poised to expand into audio accessories that don’t sit on our heads. The company’s sales are growing in portable speakers, licensed automobile-audio systems, and audio software, both in the U.S. and abroad.

There are plenty of skeptics of the headphones’ quality, and price point. San Diego smartphone developer Jesse Ridgway, 24, tried his roommate’s Beats headphones back in college. He says he could certainly afford a pair himself, “but I just don’t think it’s the best use of money, because the sound quality of most audio is not good enough to the point where you’ll notice the difference.” He compares buying a pair of $200 or $300 headphones to “buying a big plasma-screen HDTV to play your VHS tapes.”

To counteract that frugalista attitude, Beats is betting on the cachet of Dr. Dre and his music career. It worked for consumer Nathan Gallaway. He’s 26, works for a wireless carrier in Chicago and has just started an independent film company.

“It actually is a great deal of money,” Gallaway admits, adding that “luckily my mother isn’t still looking over my purchases.” But he also thinks it's worth it. He relishes listening to his favorite music, Motown and rock and roll, on his Beats headphones, and says they reveal more layers of music than cheaper headphone brands he’s tried.  He adds that he used to lose or damage his headphones frequently, but now that he has expensive ones, he takes better care of them.

Finally, he says, while Dr. Dre’s celebrity didn’t attract him, the fashion statement he could make with the headphones did. “Not only did I like the sound quality, the colors drew me in as well. I wanted something to personalize my style.”  He chose dark blue. “That really matched me,” he says.

About the author

Mitchell Hartman is the senior reporter for Marketplace’s Entrepreneurship Desk and also covers employment.
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