The 5 Biggest Headaches in the Apple-Beats Deal

The Champagne corks have popped. The principals have taken a victory lap. And the Beats team even has gone shopping, with the newly richer-than-rich Jimmy Iovine wading into the bidding for the NBA's Los Angeles Clippers and Dr. Dre reportedly buying a $50 million Los Angeles mansion from New England Patriots quarterback Tom Brady and his supermodel wife Gisele Bundchen. But there still is plenty of work ahead for the lawyers and accountants, as they begin ironing out the details of the Apple-Beats deal in earnest - a process that could drag on until fall. Meanwhile, at Apple HQ in Cupertino, Calif., preparations are underway to welcome a very different kind of company. Billboard analyzes some of the biggest challenges ahead for the merged venture.

1. Who runs music?

The lackluster performance of iTunes Radio to date helped convince Cue that the company needed to look outside for help in thinking through the music streaming market, according to several sources, who requested anonymity commenting on the deal. "No one owned responsibility for iTunes Radio," says one source. To help address that challenge, Iovine will need to step in and take ownership of Apple's entire music strategy, these sources suggest. But it's unclear how his portfolio will mesh with that of vp iTunes content Robert Kondrk, who has been overseeing the company's music business.

2. Channel conflicts

Big deals can cause unanticipated ripple effects. Bringing Beats under the Apple umbrella will create channel conflicts that didn't previously exist, says Vickie Nauman, principal at Cross Border Works and a former executive at 7digital. "For example: Beats headphones being sold both in Apple and Amazon stores. That's fine. Everybody loves the brand. All of a sudden here comes Beats Music, which is directly competing with what Amazon is doing in music."

3. Living with bosses

The Beats crew has joked with Apple brass about their office hours. Iovine, the outgoing head of Interscope Geffen A&M, hasn't really had a boss in more than 20 years. Doug Morris and Lucian Grainge oversaw his work at Universal Music Group, at least on paper, but how often did they say no? Apple CEO Tim Cook and senior vp Internet software and services Eddy Cue "are not going to be telling Jimmy what to do. They brought him in for his perspective," says one label exec.

4. Culture clashes

This may be one of the biggest challenges ahead for Beats and Apple. The latter cultivates an infamously cloistered atmosphere, where leaks about product launches are treated like national security breaches. "It's going to be a challenge for them to integrate cul­turally," says a music executive familiar with both companies. Although Iovine has had a relationship with Apple - namely Cue - for over a decade, there are questions about how Beats integrates into the mothership. What happens to Beats' editorial team in Los Angeles? What will Iovine do with Apple's development staff in Cupertino? And will the iTunes brand eventually subsume Beats, or vice versa, for Apple's digital music products? "It's up to Apple to determine who wins," says the executive.

5. Creativity vs. capitalism

In interviews since the deal was made official, Iovine has positioned his role at Apple as a true artists' champion. Indeed, his lasting value for Apple could lie in his ability to bring artists along, wherever the company and new technologies take them. That certainly may give Apple a leg up against streaming rivals like Spotify, which can't match Iovine's connections. But those connections may come into conflict with Apple's profit motive as competition heats up.


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