Large Questions Loom on News of Apple's Acquisition of Beats

I wrote a piece yesterday after news broke that Apple is near closing on a deal that would make them owners of Beats for a bit of spare change, $3.2 billion. I highlighted a few reasons why this doesn't seem to add up, and those are still valid.

Reports seem to be hinting more and more strongly that this is legit, but it still isn't quite settling right for me. In one camp, you've got those that believe the headphones are the primary driver for the deal (Ben Thompson for one). In another (perhaps larger) camp, you've got those that think it is for the music streaming service.

Both of these are valid thoughts, but both have major hurdles. It would make sense that the purchase is likely to be for both products, if it is real at all, otherwise they'd spin off (or not sell) the other half I would think. Tough to say for sure.

Headphones

If the deal is primarily for the headphones, the biggest problem I see is the brand. The Beats brand is valuable as a brand. People know it, people love it, and people are willing to spend a lot of money on it despite the obviously inferior sound quality. They sound "good enough" (audiophiles disagree) and look good enough that people want them. They've become an icon. You don't have that without the Beats brand, and when was the last time Apple sold their own product with any hint of any other brand on it? There is just no way you will see something like this happening...

How valuable would Beats be without the brand? If they wanted headphone technology, why not purchase Sennheiser or someone like them?

Music Streaming

So what if this deal is for the music streaming? iTunes Radio isn't exactly sweeping the industry by storm like iTunes did, so that might make sense, right? Well, maybe. The biggest concern is that the content rights that Beats managed to get that Apple hasn't managed to obtain for themselves aren't transferable (most likely) in the event of an acquisition. Add to that the fact that Beats Music only has around 200,000 subscribers, and you've got a much harder time justifying a $3.2 billion deal.

Video Leak

This morning, a video was posted on Facebook by Dre himself that "confirmed the deal" was happening. That makes this all seem more like a joke than anything as Apple doesn't usually stand for that kind of thing. If the deal was happening, I'd think such a slip up could certainly jeopardize it.

Closing Thoughts

I stand by my prior conclusion, despite the fact that online news sources seem to be more convinced by the minute that this is imminent. If this deal is real, there's a major piece we're all missing. Otherwise, I just don't see the value in it for Apple.

Doesn't Add Up: Rumors of Apple Purchasing Beats

As reported by the Financial Times (subscription required; MacRumors link for those without) Apple is allegedly in talks to purchase Beats for $3.2 billion. Beats makes headphones and recently launched a music service to go head-to-head with Spotify.

Apple could use some help with iTunes Radio, though for those simply looking for radio it isn't too shabby; Apple certainly loves nice hardware and hardware design and it is no secret that Apple's EarPods, though improved, could stand to be improved upon. However, this still doesn't add up. It isn't the money, it's the principle. 

They don't need the design ability. They aren't going to pay $3.2 billion for the streaming music service side of it and shut down the headphone business, though I suppose they could sell it (or only buy the streaming music part to begin with). The headphones that Beats makes are good, but nowhere near great, and they're extremely expensive.

Something is missing from the equation.

Apple has plenty of engineering talent to make better sounding headphones. Apple has plenty of design talent to run circles around Beats. Apple has plenty of engineering talent, or could at least purchase it, to improve iTunes Radio to go legitimately compete with Spotify and Beats. Sure an acquisition could jump start any of these initiatives, but a smaller and lower profile purchase, or series of purchases, would do the job nicely.

There is either more to this than we're all seeing or imagining, which is often the case with Apple, or this is completely bogus. Both of these seem quite plausible, I guess only time will tell.