Apple may pay record US$3.2b for Beats
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APPLE Inc is close to paying a record US$3.2 billion for Beats Electronics, two people with knowledge of the matter said, an expensive foray into music streaming and headphone gear that would mark a departure for the usually cash-conservative iPhone maker.
Both companies are hashing out details and the envisioned deal could still fall through, one person said on condition of anonymity because the discussions were private.
A second source familiar with the matter said Apple was in the market for a subscription-based music service to complement its “iRadio” ad-based offering, launched in 2013 as part of an attempt to jump into a music-streaming arena then split between a handful of startups such as Pandora Inc.
Founded by rapper Dr Dre and legendary music producer Jimmy Iovine, Beats Electronics is best known for its “Beats by Dr Dre” line of trendy headphones that vie with the likes of Skullcandy Inc, Sennheiser Electronic and Bose Corp.
This year, it launched a music service that has won plaudits for its slick design and human music curation, versus the computer-algorithms that determine playlists for most of its rivals.
But analysts have questioned whether Beats, valued at just US$1 billion during its last funding round in September, was worth that price. Apple had more than US$130 billion in cash as of the end of March, but the vast majority of that is parked abroad and investors have called on the company to return more cash in the form of dividends and buybacks.
Apple-watchers have speculated that the company that upended the music industry — and today is the single largest seller of tunes — was contemplating a Spotify-like on-demand music service to go with iRadio service and iTunes.
“This is really puzzling,” said Forrester analyst James McQuivey, who said there was huge overlap between the two companies’ customer base. “You buy companies today to get technologies that no one else ... or customers that no one has.”
“They must have something hidden ... under the hood,” he said.
In two of the largest deals this year, Facebook paid US$19 billion for WhatsApp and its half-billion users, and it paid US$2 billion for Oculus VR and its cutting-edge virtual reality headset.
Apple declined to comment. Beats Electronics did not respond to requests for comment.
Apple has not made a billion-dollar acquisition in at least a decade. The company prefers to develop and design its products in-house, though it has tended to pay several hundred million dollars for small but important bits of technology to propel its core consumer electronics business, such as the acquisition of PA Semi in 2008 that led to the processor now found in all iPhones.
The company has been under pressure to try to revitalize growth as iPhone sales slow in a rapidly maturing market.
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