Why is the Apple Beats deal taking so long?
It's been weeks since several reports and even a significant hint from Dr. Dre suggested Apple wants to buy Beats Electronics for $3.2 billion. It's not very clear why Apple wants to acquire Beats, but a deal announcement is still expected.
So, when will Apple finally confirm this deal? And why is the company taking so long to make an announcement? These are just two of the questions that everyone is asking, so Pocket-lint has taken a closer look at all the possible reasons.
First of all, this isn't your typical acquisition. Apple doesn't normally buy huge companies for lots of cash. Similarly, Apple's deals usually aren't confirmed through leaked videos filled with swearing rappers. It's a notoriously secretive and controlling company that makes practical and calculated decisions.
With this in mind, Pocket-lint has detailed three possible reasons why the Apple-Beats deal is taking so long.
Dr. Dre and Jimmy Iovine aren't Apple material
Apple's acquisition of Beats could partly be an acqui-hire. US music charts company Billboard reported earlier this month that Apple planned to introduce Beats' co-founders Jimmy Iovine and Dr. Dre as new company executives at WWDC 2014 in June. Iovine would manage Apple's future music ambitions as well as partnerships with labels and publishers. As for Dr. Dre, there was no word on what he would do for the company.
That said, both men could help Apple tackle the issue of dwindling download sales on iTunes if given Apple executive roles. After all, many reports have speculated Apple will enter the subscription music streaming space. Such an endeavor would require hard-to-snag partnerships with labels and publishers. Luckily for Apple, Beats' co-founders have plenty of contacts and experience in that arena.
There's just one problem: Apple is a conservative company, both in terms of its controlled image and the way it spends money. Apple - especially during its Steve Jobs days - once prided itself on thinking differently, but things have been noticeably different in recent years with Tim Cook at the helm. The Beats deal would not only be Apple's biggest one to date but also Cook's first major acquisition.
It's therefore safe to say Apple and Cook are being careful and meticulous while negotiating the terms of the deal, and because the company is notoriously secretive and doesn't like or even condone leaks, it was probably more than furious when Dr. Dre somewhat confirmed the Apple-Beats deal in a foul-mouthed video published online.
Apple is allegedly spitting feathers over the leak. According to Billboard, sources claimed that while the acquisition is still being considered, Apple is uncomfortable with the circumstances surrounding the buyout. Sources said the Apple family "near imploded with outrage" when Tyrese Gibson's video was posted on Facebook, with Dr. Dre stating on camera that he will be the first "motherf***ing hip-hop billionaire".
The video has therefore led to concerns as to whether Dr. Dre and Jimmy Iovine would fit in at Apple. Instead of Beats' co-founders getting executive roles, at Apple, Billboard claimed they might become permanent consultants for the company instead. Last minute deal changes of this nature, coupled with the unsettling leaks, might explain why Apple is hesitant to finalise and announce a deal.
Deal is big, complex, and possibly over-priced
Going back to Apple being a conservative company, Apple is reportedly in talks to buy Beats Electronics for $3.2 billion. That's a lot of money for a company that typically doesn't partake in huge acquisitions.
Iovine, chairman of Interscope-Geffen-A&M Records, and Dr. Dre, a hip-hop music producer, founded Beats Electronics in 2008. In just six years, the company has created a popular line of expensive headphones, a music-streaming service called Beats Music, and an audio technology that it licenses to other companies, among many other things. And now Apple wants to own all of that, it's claimed.
If the the deal goes through, it would be Apple's largest acquisition ever. It would also be a significant departure from Apple's history of only buying small companies. Apple has long been hesitant to spend money on high-profile acquisitions and typically looks in-house when coming up with ideas that will innovate and make an impact on the industry.
If Apple does indeed buy Beats Electronics, it will notably acquire Beats Music, which launched this year, and Beats' audio equipment business, including Beats headphones, which are currently sold at Apple retail stores. Apple has likely looked at its retail sales data and can see that Beats headphones sell well. Beats generated revenue of roughly $1 billion in 2013, up from less than $200 million in 2010.
Billboard has claimed however that Apple isn’t buying Beats for its headphones but for its Beats Music music-streaming service. Beats Music had a huge early marketing push, and it also has an AT&T partnership and backing from Len Blavatnik of Warner Music Group and other investors. All of that likely looks appealing to Apple, as it reportedly wants to join the streaming music revolution without damaging iTunes sales.
Buying Beats means Apple would be able to offer a streaming service which it can make money from while also maintaining the iTunes sales. Many people still like to own their music and have built up an iTunes library which they can't face changing. That said, Billboard's sources noted there is still some discussion around figuring out the valuation of Beats Music.
Beats Music - despite all the bells and whistles - only has 200,000 subscribers and a possible $200 million valuation. If Apple only wants Beats for Beats Music, than $3.2 definitely seems a bit pricey. It's not clear if Apple wants to acquire Beats for its talent or businesses, but a deal announcement has been expected since the beginning of May. Many now assume the delay is coming from Apple and Beats still hammering out financial details of their agreement.
Apple is waiting for WWDC
Less than two weeks before Apple’s Worldwide Developer Conference, there's obviously some speculation about whether the Apple-Beats deal has fallen through or is in limbo. Ironically, Apple is largely expected to confirm the Beats deal at its conference.
Despite confusion over why Apple is taking so long to confirm the deal, TechCrunch has reported the Beats deal is happening with "70 per cent certainty". The report also claimed Apple will snag Dr. Dre and Iovine in an attempt to tackle culture - like it is using Burberry's Angela Ahrendts to tackle fashion.
The Financial Times reported earlier this month that the deal could be announced around mid-May, but hat time-frame came and went with no word from Apple. Billboard later claimed that Apple planned to introduce Beats' co-founders Dr. Dre and Iovine as new company executives at WWDC 2014 in June. This led many to wonder if Apple also wanted to announce the Beats deal at its conference.
That said, Apple doesn't really use WWDC as a stage for announcing acquisitions. The annual conference certainly seems like the best place to announce such a history-breaking deal for the company however, especially considering Apple reportedly wants Beats for its Beats Music streaming service. It therefore only makes sense that Apple would unveil a huge software buyout at its developer’s conference.
With the Beats acquisition still unconfirmed, you can expect Apple to use the next week to build even more anticipation its conference. Apple's Worldwide Developer Conference will kick of on 2 June in San Francisco. It's a time when the company typically unveils new products and outlooks, and it also gives engineers and app developers a sneak peek at upcoming operating system developments.