Why Apple Needed Beats (In Graph Form)

On the same day Apple announced its $3 billion acquisition of Beats Electronics, Morgan Stanley released research that shows why Apple needed the acquisition. Per-account spending at iTunes has fallen 34% to $1.90 in the first quarter of this year from $2.90 a year earlier.

 

Yesterday's digital music business is being replaced by newer streaming services. Apple's customers, who account for the majority of download consumption, are spending less on media downloads. It stands to reason they are spending more time and money on streaming services. 

Apple needed to address the issue. The company has given big head starts companies in Internet radio (Pandora) and subscription services (Spotify, Deezer). Beats could help its video efforts, too. The digital living room is crowded with set-top boxes competing with Apple TV (Roku, Amazon Fire TV), competing services from cable companies and popular streaming services (Netflix, Amazon Prime). 

Other companies will need to address the changing digital music business, too. Amazon will introduce its own streaming service. Google already has a subscription service to go along with its music download store. Samsung just dropped storage service and debuted an online radio service, Milk Music. Expect more disruption in 2014.