Apple’s makes offer for Beats

By on May 12, 2014

Apple may finally have decided it needs to spend big to stay on top, in the absence of any sign it’s about to turn out the next big thing from within. The tech giant is reportedly close to sealing a R60 billion deal to buy Beats Electronics, the headphone-maker and music-streamer founded by rapper Dr Dre and music producer Jimmy Iovine.

If the buyout goes through, there’s going to be a lot of Cristal cracked out in Compton (or wherever Dre lives these days. Eminem’s basement?). It will also herald a dramatic departure from the Steve Jobs era, when Apple’s takeovers were tiny and few and far between.

Chief Exec Tim Cook has been snapping up small companies – 24 in the last 18 months – since taking over from the late Steve Jobs in 2011, and the deal is a drop in the ocean for the Mac maker, which is sitting on a cash mountain.

However, Apple has previously bought companies to supplement its own products, rather than those with entirely new ones. Moreover, Beats was valued at around R10 billion only eight months ago, when private equity firm Carlyle Group invested R5 billion. Not quite on the scale of Facebook’s splurge on Whatsapp, but a hefty premium nonetheless.

Why Beats, then? It isn’t small: Its R3 000 headphones account for 27 percent of the headphone market, which is estimated to be worth R18 billion. That’s despite being described as “a trendy tiara with the sound quality of an unmuffled dump truck”, which makes the wearer look lame.

Apple’s longer-term play could be for Beats’ subscription streaming. Sales at Beats Music, its version of Spotify, grew 50 percent to R11 billion in 2013, according to music industry association IFPI. In contrast, downloads from iTunes et al fell two percent to R39 billion, after expanding for the last decade.

It could have started up its own service though, particularly as Beats Music has a mere 200,000 subscribers compared with Spotify’s 6 million paying users. Cook may, then, have decided it’s quicker, easier, and cheaper in the long run to buy things rather than create them from scratch. That would be big news in Silicon Valley deal-making: While Google and Facebook have been flashing the cash, Apple have so far stayed on the side lines.

It will also worry investors and devotees, who have been waiting years for the tech giant to bring out the next big thing themselves (rumoured to be an iWatch or TV), after the iPod and iTunes, Mac and iPhone shook up music, computers, and mobile phones. They may have to wait a while longer…

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