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What The Beats Acquisition Means For Apple

Deadline's David Lieberman explains what Apple is getting for its $3B buy of Beats.

Just hours afterEddy Cue and Jimmy Iovine the biggest deal in Apple’s history, two of the key players in the $3 billion acquisition of Beats Electronics and Beats Music took to a conference stage to say the deal took a decade to happen, and then virtually no time at all. “I asked them every day for 10 years,” said Jimmy Iovine, the long-time Universal Records executive who co-founded Beats with rap super-producer Dr. Dre. “These guys are not easy to get to. They make deals like they make products,” as he made a wringing motion with his hands.

Iovine and Apple Sr. Vice President of Internet Software and Services were on stage at the Code Conference in Palos Verdes, CA, this evening just hours after the much-rumored deal was finally announced, bringing the maker of hugely popular (and frequently-criticized) headphones and portable speakers and a budding but still small music streaming service to the tech giant for $3 billion.

“Tim (Cook, the Apple CEO) was involved in the conversation and we just said, ‘Let’s go,'” Iovine said. “How does somebody date for 10 years, and then suddenly you get married? It just happens. I’m at Apple now. I can’t say anything.  Cue said, “The time wasn’t right” previously for an Apple acquisition. “You can only do so many things that are great in life. We think going into speakers now is the right idea. (Iovine and Dr. Dre) have got the best ears on the planet.”

Cue laid out three key areas where the acquisition can help Apple.

“This is just about us continuing to invest in music,” Cue said. “Beats in particular has three things that we loved. No. 1 is incredible talent. This is the smartest music person I’ve ever met. Dre is an incredible artist. And they have a fabulous team. No. 2, they’ve built incredible premium earphones. They’ve been hugely successful. No. 3 is Beats Music. One of the things we’ve seen is this is the first music streaming service done right. Like when I was a kid listening to albums, they’ve done the same thing with their service.”

Cue also was looking to future collaborations between Beats, which has about 550 employees, and Apple. “It’s about what we can do together,” Cue said. “Those things are going to be much greater than anything we could do on our own.”

“When we met the guys at Apple, what we realized is they get it,” Iovine said. “They respect what we do, they respect the entire food chain. They get it. We built Beats, built Beats Music and we got lucky.”

One key will be continuing to build a streaming music service with a human touch, rather than just computer algorithms, curating the way songs flow one to the other, Iovine said. That process has been missing in even the most successful services, such as Spotify, which has around 10 million users compared to Beats’ 250,000.

“What we feel, especially in the streaming area, especially in the services area, is that you need curation,” Iovine said. “Saying, ‘Just give me a credit card and good luck,’ isn’t going to work. This thing is affecting music in such a powerful way. We’re starting to see massive change.” Iovine called himself a “retired record executive,” and said he anticipates spending even more time in Cupertino than the 10 visits a year he’s done in recent years. Finding new ways to engage music fans is important, given the shrinking number of new releases and increasing disengagement particularly among young fans.

“Both Dre and Jimmy have an incredible ear for sound,” Cue said. “As he mentioned with curation, you have to know what the next song is. Bringing that back is incredibly important to music. It hasn’t been growing in the way we would want it to.” “It’s very important to everyone in the music industry,” Iovine said. “We have to get this right. We don’t know this model yet. We have to get it right quickly, and Apple is the right partner.” Cue chimed in,” And 800 million (Apple iTunes) customers doesn’t hurt either.”

Cue said the Beats brands, which have proven hugely attractive to young consumers, will remain separate from Apple, an unusual move but one he said isn’t unheard of for Apple. And Apple will continue to develop Windows and Android versions of the Beats service, so that it is cross-platform, unlike some other parts of Apple’s many services. Cue also disputed claims by some that the music business is falling apart. 

“The fact of music sales going away is way overrated,” Cue said. “We just passed 35 billion tracks sold. We have about 40 million users on Apple Radio. We think subscription is the third way and wanted to do it the right way.”

For his part, Iovine said he expects to remain intensely involved in the music business, but now as an Apple employee. “I’m really interested in the record industry and the artists and the problems they’re having,” Iovine said. “What’s going on right now, most artists live on the road and are making their albums on the road, so they’re not as interesting any more. We have the opportunity to get these two worlds presented in the right way. It’s an extraordinary thing.”

Cue also disputed claims by some critics of the deal who said it marked a big shift for Apple away from internal innovation. “We never had a rule that said ‘Thou shalt not buy,'” Cue said. “In the last year, Apple bought 27 companies. It’s a significant purchase, no doubt. We just look at this as an opportunity to partner and make some great products. We’re all looking and seeing what opportunities there are. If we see an opportunity, we’ll strike.”