And Dr Dre said - nothing you idiot, Dre Dre's celebrating Apple's $3.2bn offer for Beats in my basement

Apple is set to make its biggest purchase ever, after years of small deals.

by Rachel Savage
Last Updated: 04 Nov 2014

Apple may finally have decided it needs to spend big to stay on top, in the absence of any sign it's about  to turn out the next big thing from within. The tech giant is reportedly close to sealing a $3.2bn (£1.9bn) deal to buy Beats Electronics, the headphone-maker and music-streamer founded by rapper Dr Dre and music producer Jimmy Iovine.
 
If the buyout goes through, there’s going to be a lot of Cristal cracked out in Compton (or wherever Dre lives these days. Eminem's basement?). It will also herald a dramatic departure from the Steve Jobs era, when Apple’s takeovers were tiny and few and far between.
 
Chief exec Tim Cook has been snapping up small companies – 24 in the last 18 months - since taking over from the late Steve Jobs in 2011, and the deal is a drop in the ocean for the Mac maker, which is sitting on a $150bn cash mountain.
 
However, Apple has previously bought companies to supplement its own products, rather than those with entirely new ones. Moreover, Beats was valued at around $1bn only eight months ago, when private equity firm Carlyle Group invested $500m. Not quite on the scale of Facebook’s $19bn splurge on Whatsapp, but a hefty premium nonetheless.
 
Why Beats, then? It isn’t small: its $300+ headphones account for 27% of the headphone market, which the Telegraph estimates is worth $1.8bn. That’s despite being described as ‘a trendy tiara with the sound quality of an unmuffled dump truck’, which makes the wearer look lame. The rationale for getting hold of that side of the business could just be buying up marketers who have ‘trained lots of people to spend money on [decidedly mediocre] headphones with high price tags’, as tech site Recode put it.
 
Apple’s longer-term play could be for Beats’ subscription streaming. Sales at Beats Music, its version of Spotify, grew 50% to $1.1bn in 2013, according to music industry association IFPI. In contrast, downloads from iTunes et al fell 2% to $3.9bn, after expanding for the last decade.
 
It could have started up its own service though, particularly as Beats Music has a mere 200,000 subscribers compared with Spotify’s 6 million paying users. Cook may, then, have decided it’s quicker, easier and cheaper in the long run to buy things rather than create them from scratch. That would be big news in Silicon Valley deal-making: while Google and Facebook have been flashing the cash, Apple have so far stayed on the sidelines.
 
It will also worry investors and devotees, who have been waiting years for the tech giant to bring out the next big thing themselves (rumoured to be an iWatch or TV), after the iPod and iTunes, Mac and iPhone shook up music, computers and mobile phones. They may have to wait a while longer…

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