Apple/Beats -- Why Beats? Why $3.2 Billion?

The digital media/tech world -- globally -- is abuzz with news that Apple may acquire Beats for $3.2 billion.  I literally just got off the phone with BBC Radio for a radio interview -- and will be on BBC TV via Skype video later today.  Several others have reached out for comment, underscoring the fact that when Apple sneezes, the world grabs a tissue.

So, first, if true, why Beats?  Why would Apple make a deal that would be, by far, its biggest acquisition to date?

(1) Apple needs to make a bold move -- it’s been quiet for too long;
(2) Music has always been core to its DNA -- near-and-dear to Steve Jobs in every respect, especially marketing his products;
(3) Apple needs to get into the on-demand music streaming business; downloads are declining, subscriptions are on the rise.  Yes, Apple has its own Pandora-like service -- but it doesn’t have its own Spotify-like service;
(4) Beats and Apple are simpatico in many many ways -- the perfect marriage -- share the same DNA;
(5) Beats, unlike Spotify -- but VERY much like Apple -- is a hardware-first company; music services (like new Beats Music) are a Trojan Horse to drive more hardware sales of headphones and other hardware products (remember, Beats drove about $1.2 billion in revenues last year, all of which were hardware-driven); Apple markets music and media to drive more hardware sales -- THAT’s its business model (music is the means to an end);
(6) Beats and Apple are both artist-focused and have deep ties to the artist community; contrast this to Spotify which bills itself as a technology-first company; it’s just a different way to think about the world;
(7) As a result, Beats and Apple executives know each other well -- very well -- so there is a significant comfort factor here;
(8) In fact, Apple and Beats have been partners for a long time -- Apple features Beats products in its retail stores;
(9) Why?  Both Apple and Beats products share the “cool” factor; both make and sell premium products that represent more than the hardware itself -- they represent a lifestyle; they are aspirational; consumers are invested in those brands;
(10) Both share significant partnerships with AT&T; Beats Music just recently launched with AT&T as its primary distribution partner; Apple -- a few years back -- launched its game-changing iPhone with AT&T as its primary distribution partner.

So, how about the rumored $3.2 billion price-tag? How can that be justified?

(1) As indicated above, Apple needed to make a bold move -- and has plenty of cash to do it; this may be a first bold move (with more to come ... stay tuned below);
(2) Beats already drives $1.2 billion in annual revenues; Apple -- with its much broader platform and overall reach -- can magnify that number, especially with its renown marketing prowess; this may be a case where “cool” + “cool” = “cool” squared; and
(3) Scarcity -- given all of the above, Apple may view Beats as standing alone in this overall game -- which leads to the issue of scarcity and the need to make a bold move to take that target out; remember, Beats was driving toward an IPO; only a massive price-tag could stop that train.

What’s next?

Assuming Apple closes this deal, expect Apple to do the unexpected -- retain Beats’ brand (something I don’t recall them previously doing).  That brand alone is valuable -- very.

And, here’s a bold prediction (that I made one year ago far before more recent rumors started to swirl around about it).  Maybe it is Beats first, and Tesla second (interestingly, I am writing this post at the Tesla Service Center in San Diego while I get my Elon Musk-driven safety coating installed on my Model S).  Car audio makes so much sense for Beats.  And, Tesla makes so much sense for Apple.

One more bold bonus prediction -- why doesn’t Apple just buy DISH Networks to solve its iTV content problems (much in the same way Apple may buy Beats to solve its on-demand music streaming problem -- i.e., music label licensing agreements)?  I wrote about this previously as well and laid out the rationale.  DISH’s CEO, just the other day, publicly said that they have the critical mass of the network licenses they need to run their own compelling OTT “TV” service.  With AT&T potentially making a play for DirecTV, maybe Apple may take another bite by dishing it out for DISH.

We live in interesting times indeed ....