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Monday, 12 May 2014

Apple Buys Beats by Dre

Apple is not a business known for buying the success of others: while Google has bought companies such as Nest, which makes smart smoke alarms and thermostats, and Facebook has bought photo-sharing service Instagram, Apple has confined itself to developing its world-beating products in house and buying only rather little firms.
That all changed late on Thursday night when reports emerged that Apple had rekindled 2013 discussions about buying Beats, the headphone and music streaming company, for more than $3bn. A video later emerged on Instagram and Facebook – and was quickly deleted – of co-founder, rapper and producer Dr Dre and fellow musician Tyrese Gibson: “The Forbes List just changed”, they said, talking about the American list of the super rich which currently places Dre as the second-richest rapper, worth a mere $550m. As the pair put it, “Billionaire boys club for real”.
There are several reasons why Apple might be interested in Beats: since the advent of the iPod and subsequently the iPhone, sales in headphones and accessories such as Bluetooth speakers have boomed. Beats can cost more than £300, and the value of the headphone market as a whole reached more than £5bn last year, spent on 284m units according to Futuresource. Beats is the brand that has captured a huge part of the market with its simple but conspicuous style; an emphasis on bass from Dre himself has suited the rise in urban music too, while also attracting a certain audiophile snobbery. The market overall will grow by 5pc or more over each of the next five years, and Beats is currently more than a quarter of it.
But it’s not just hardware: much of Beats $1bn income now comes from its 200,000 music subscribers, many of them garnered through a lucrative deal with American phone network AT&T. With Apple’s revenue from iTunes music downloads now in decline, it would be advantageous to have a vehicle through which to challenge Spotify and other services that charge users annual subscriptions to rent access to vast, global collections of music.
There is, however, a third factor: Apple has $150bn in cash available to spend. Although it’s not likely to go on an acquisition spree, spending 2pc on a new company with the urban cool some fear analysts could be losing would not do it any harm. With Beats expertise in designing wearable technology, it might even help Apple with future products such as the long-awaited iWatch 
SOURCE: Telegraph

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