Why Apple would want to buy Beats

Beats by Dr. Dre

The image illustrates the White Solo Beats by Dr. Dre. Apple is allegedly in talks to purchase Beats eletronics- an acquisition that would cost a reported $3.2 billion.

Apple CEO Tim Cook recently said the company was going to go on a shopping spree and now it looks like the company is making good on that. Apple has reportedly made a bid to buy Beats Electronics for $3.2 billion. Beats was started by Rapper Andre "Dr. Dre" Young in 2008. It's best known for its headphones: they’re colorful, stylish and cost about $200.

"It’s certainly clear that this is a huge growth category within retail," says Ben Bajarin, a tech analyst with Creative Strategies. He says status headphones are big business. And Beats’ revenue reportedly topped $1 billion last year.

Not everyone agrees. "They certainly don’t need the headphone company, which makes second rate headphones based on marketing," says music industry analyst Bob Lefsetz. He thinks Apple would be a lot more interested in Beats’ music streaming service. Steve Jobs famously opposed the subscription music model and, instead, championed iTunes' current model, where you buy a song outright.

"The paradigm is shifting as I speak," says Lefsetz. "Apple iTunes sales are down, streaming revenue is up. Apple caught flat-footed, they’re trying to solve this problem by buying Beats."

But Apple doesn’t need to buy its way in to the streaming business says James McQuivey, a media and technology analyst at Forrester Research. "The subscription business is something Apple could have done by lifting a finger at any point during its history," says McQuivey. "This is not a unique skill set, industry relationship, technology, none of that."

McQuivey thinks the possible Beats buy would likely be part of a larger strategy. After all, Apple is sitting on $151 billion in cash and its shopping spree has just begun.

 

About the author

Stacey Vanek Smith is a senior reporter for Marketplace, where she covers banking, consumer finance, housing and advertising.

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