Apple is reportedly closing in on a deal to acquire Beats Electronics for $3.2 billion, according to a Financial Times report. If completed at that price, the deal would be the largest ever for Apple. The deal is said to include both Beats’ music subscription service and its hardware business, which sells Beats by Dr. Dre headphones and portable speakers. The deal hasn’t been finalized, but could be announced as soon as next week -- or fall apart completely, according to the report.
Apple and Beats both declined comment, though sources have confirmed the deal to Billboard.
Founded in 2006 by Interscope-Geffen-A&M Chairman Jimmy Iovine and hip-hop producer Dr Dre, Beats is one of the newest entrants in the all-you-can-eat music subscription market. The company enjoyed a splashy launch in January, with brisk signups said to follow a Super Bowl advertisement. But some observers expressed concern that its growth had slowed, describing its subscriber numbers as “disappointing.”
For many years, rumors have flown that Apple would enter the music subscription business, but the company has resisted thus far. The company launched its free iTunes Radio streaming service in September hoping to make-up for the company's losses in download revenues. But by April a Billboard report described the service's first six months as "underwhelming." Apple continues to reap multi-billion-dollar revenues from sales of music in its iTunes store though downloads were down 13% as of mid-March. Billboard reported at the time that Apple had opened exploratory talks with senior label executives about the possibility of launching an on-demand streaming service. It is possible that those talks were in preparation for the Beats purchase.
In its last earnings report, the Cupertino, Calif., technology company reported $10.2 billion in profit on $45.6 billion in revenue in the quarter ending March 29, driven primarily by strong year-over-year iPhone saies. Apple also sells Beats hardware in its Apple stores.
In late 2009, Apple acquired Lala.com, a site that offered ownership of individual web streams of songs. It eventually added a scan-and-match service that allows users to stream music from multiple devices via the cloud once they’ve demonstrated ownership of them, but has thus far allowed other companies to develop the subscription music market without launching a service of its own.
Beats acquired subscription service MOG in 2012, and brought in former Topspin Media CEO Ian Rogers as its chief executive the following year to launch the subscription service. Beats acquired Topspin, a direct-to-fan marketing platform developer, earlier this year.
Beats Co-founders and majority holders Iovine and Dr Dre are set to make hundreds of millions from the deal as does Washington, D.C.-based private equity firm The Carlyle Group which reportedly invested $500 million in Beats last September, valuing the start-up at more than $1 billion. A subsequent report in the Wall Street Journal claimed Iovine would likely take on an executive position at Apple if the deal goes through.
Universal Music Group, the world's largest music company, looks set to make hundreds of millions of dollars on its early investments in Beats Electronics if the deal closes at the $3.2 billion valuation, according to people familiar with the discussions. The 14% stake would be valued at $448 million, far in excess of UMG's early investment, said one person familiar with the terms.
Billboard will continue update this story as it develops.
Additional reporting by Yinka Adegoke and Andy Gensler