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After weeks of rumors, Apple confirmed its intention to purchase Beats Electronics at the end of May for $3 billion in cash and stock. But they don’t just get the thriving high-end headphone business, Beats also run Beats Music, a music streaming service, which Apple will now control.
Of course, Apple still makes its own, relatively straight-forward headphones for its devices, and iTunes continues to grow. So, why did did Apple acquire Beats? And what does this mean for both Apple. Beats Electronics, and the future of their products?
What it means for Beats Electronics
Apart from the Beats Music service, Beats also creates high-end headphones that can be seen on the heads of many everyday consumers and celebrities alike. Founded by Jimmy Iovine and Dr.Dre in 2006, Beats Electronics made $1.5 billion for the fiscal year of 2013. Their market share of the $100 + headphone sales stands at 64% according to NPD Group. Beats Electronics is already a very profitable company and will likely continue to be under Apple.
Jimmy Iovine and Dr. Dre are set to join the team at Apple. Iovine has long been embedded in Hollywood and it’s hoped that with his new full-time role, deals for films and TV content that are often held up, will be pushed through thanks to his influence.
Meanwhile, Dr.Dre will work for Apple on a more partial basis. However, he has huge influence within popular music and has helped place Beats Headphones as a must-have accessory, especially in the teenage demographic. Apple will be flexible in the hope that he brings some of that same magic to them and get iPhones into the hands of more global superstars. In fact, recent Beats adverts for the FIFA World Cup showed a wide range of celebrities and sports stars wearing Beats Headphones while using an iPhone.
What it means for iTunes
iTunes is arguably the product that propelled Apple into the company it has become today. Launched back in 2001 for Mac only, iTunes was the only way to sync with an iPod before expanding to Windows in 2003 alongside the launch of the iTunes Store. The launch of the store saw its popularity explode and has since gone on to sell 25 billion songs.
However, recent upstarts such as Spotify and Pandora that offer streaming services in return for a monthly fee have seen digital sales of music start to fall. The 12 months between 2012 and 2013 was the first time that digital sales of music fell year-on-year with a drop of 5.7% in the US according to Nielsen SoundScan.
Apple has since launched a streaming service; iTunes Radio but it hasn’t yet got the audience Spotify has – or the global reach; significant markets like the UK still doesn’t have access to the service. However, how much iTunes Radio grows will depend on the growth of iTunes. Billboard reported in April 2014 that only 1%-2% of listeners actually clicked the buy button when using the service, which is presumably why Apple very much wants users to do in iTunes Radio.
It wouldn’t be amiss to suggest that the Beats deal could see the Beats Music service integrated with iTunes. Instead of starting a radio station, Beats Music gives users access to over 20 million songs from all major labels alongside playlists curated by real people from Rolling Stone, Rap Radar, and Pitchfork. The service is also available on Android and Windows Phone systems, meaning Apple now has a Trojan Horse in the form of Beats, helping it to exist in ecosystems outside of its own.
Apple didn’t reveal any possible integration of the service at WWDC in June but it’s entirely possible that the service will be quickly combined with iTunes alongside the release of iOS 8 in the fall.
What about Hardware?
Beats headphones are often priced above $100 – the newest model, solo2, would set you back $199.95, but are designed to give great bass performance. Despite this, they have often come under criticism for poor sound quality, though that hasn’t stopped them becoming the best selling headphones over $100.
While iPhone headphones do come free with the device, they’re not designed to provide high-end sound quality. Beats’ expertise may well help to create some more rugged options without eating into the profit margin.
Beats also previously built its mix of hardware optimization and audio equalization into HTC mobiles, which used to own part of the company, and HP Laptops. It remains to be seen if some of this technology will make its way over to the iPhone, iPad, or Mac. The iPhone is crying out for an audio update – it still has just the one speaker for emitting sound compared to the stereo options available on the iPad mini and iPad Air.
Whether Jony Ive will start designing oversized headphones, though, remains to be seen.
How Beats Music service stacks up
What is the Beats Music service like and how does it stack up to the current competition? Let’s find out…
1. Beats Music
The Beats Music service launched in January 2014 with a number of features that helped it stand out from the competition.
Users can start with a 14-day free trial to try out the service on your device. After that it costs $9.99 per month or $99.99 for a year. Recently, Beats unveiled a family sharing plan in association with AT&T that allows up to five people and 10 devices to use the service for $14.99 per month.
Users get access to over 20 million songs with no adverts interrupting streams. Beats’ algorithm also tailors playlists based on your preferences, while you can also create your own and quickly share them with others.
Thanks in part to Dr. Dre’s involvement, Beats is also pretty good at getting exclusive tracks for the service including a recent remix by Jay-Z of the song used in the Beats World Cup advert.
On a less positive note, Beats Music is currently only available in the US but there are, naturally, plans to expand.
The Swedish startup has quickly picked up subscribers since launching its service back in 2008 but didn’t launch in the US until July 2011. As of May 2014 Spotify states it has 40 million users and 10 million subscribers.
Unlike Beats Music, Spotify does offer a free plan but streams will be interrupted by adverts. If you want to avoid adverts then you can upgrade to the Premium package for $9.99 per month.
Spotify also states it has access to 20 million songs and allows third-party applications to plug into the desktop version to offer extra features. The mobile version has also been available for some time and offers a polished experience on iPhone and iPad.
Spotify is also currently available in many countries and is particularly popular in Europe.
An extremely popular service that offers similar functionality to iTunes Radio. It was formed in 2000 and the original aim was to provide a personalized radio station with just ‘good’ music on it. To achieve this Pandora created the Music Genome Project to analyze songs. After initially failing to sell the technology, Pandora Media launched in 2004.
Currently the service is offered with a free option meaning you’ll hear ads or pay $3.99 per month to go ad-free. Pandora states it currently has 250 million users, making it the largest streaming service.
Similar to iTunes Radio, Pandora lets you listen to a radio station that is tailored to your choice. There is no way to pick a specific album or song to be played through Pandora. There are also limitations placed on the user, including a restriction on the number of times a user can skip tracks, currently set to only 30 times in a 24-hour period. Users aren’t allowed to rewind or fast forward, either.
Pandora is currently limited to the US, Australia, and New Zealand, meaning it’s relatively limited in its subscriber reach and has a much smaller library of only 900,000 tracks.
Rdio is another service that lets you stream music to your device. Again this is free with adverts, or $4.99 per month if you use the web client, and $9.99 per month if you want to use it on your desktop or mobile devices.
Currently Rdio offers over 25 million songs in its catalog and again users can create playlists or listen to curated ones. Launched back in 2010 by an ex-Skype developer, Rdio looks to try and make music fun again. It’s not clear how popular Rdio is but it has received credit for its design and user experience. It’s also available in 60 countries, which is more than any of the previously mentioned services.
Though YouTube doesn’t offer a subscription service it has plans to become one. Google’s video streaming website recently announced a new subscription music service that would allow users to turn off adverts when watching music videos. It’s not clear when this will be launched though.
YouTube is now arguably one of the most popular music services with its ad-supported platform. Songs like ‘Gangnam Style’ have racked up over 2 billion plays alone and it’s ubiquitousness across all platforms makes it a popular destination for all. A Nielsen survey found that 64% of US teenagers mainly listen to music on YouTube.
The beat goes on
Beats Music has a fight on its hands to usurp any of the current players but with the might of Apple behind it, plus some marketing savvy from Dr. Dre it might just stand a chance.