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Sad rumor…
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In looking at the breakdown of the deal, the Beats Music side was only the $500M of of the $3B deal. So if that was what they were really after, seems like they could have saved some money. Not that the deal would have been done just for the streaming side, but interesting to see the value breakdown of the deal. In the end, Apple probably puts a lot more value on the streaming side and having to pay $3B was worth it.
Michael
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[Michael Phillips] “Not that the deal would have been done just for the streaming side”
“Tim Cook: This is all about music”
That’s from a very interesting little interview at Re/code.
Couple of other juicy quotes, my emphasis added.
We get a subscription music service that we believe is the first subscription service that really got it right. They had the insight early on to know how important human curation is. That technology by itself wasn’t enough — that it was the marriage of the two that would really be great and produce a feeling in people that we want to produce.
Answering the question if they could have done it themselves:
We could build just about anything that you could dream of. But that’s not the question. The thing that Beats provides us is a head start.
And by the way — we do acquire companies. I know we don’t talk about them, but we’ve acquired 27 companies between fiscal year 2013 and this year so far. So we’ve never been of the mindset that we shouldn’t acquire things.
wtf? They’ve acquired TWENTY SEVEN companies that recently? Apple’s FY ends in September, so I’m not sure if he means since the end of FY 2013 on 9/29/13, or if he means since the year before that, but either way, it’s a LOT.
re: Dre getting an Apple employee ID badge:
re/code: So Jimmy and Dre are going to be Apple employees? Full time?
Tim Cook: 100 percent.
It’s a short interview, but he also touches on the great people, Jimmy and Dre in particular of course (“they’re kindred spirits,” “people like this aren’t born every day,” etc.) and the headphone business.
The headphone business is small, but I agree it’s interesting, because it sums up this part of Apple’s business in a nutshell: trendy, overpriced, overrated, but good enough for people who don’t know better, or who DO know better but do it anyway because of brand devotion.
Tim also says, “It’s because we always are future-focused. So it’s not what Apple and Beats are doing today. It’s what we believe pairing the two together can produce for the future.”
I swear I didn’t read this interview until this morning, AFTER what I wrote last night, but he confirmed every single point I made.
I also saw some more about the damage that Spotify has done to iTunes, and the decline of digital music sales. It turns out that digital music sales at Amazon are UP! Not huge — a couple of percent — but considering that the sector is down 14% on the whole, Apple is moving even MORE in the wrong direction than I thought.
It also turns out that paid subscriptions as a business are up 80% last year — again noting that Spotify’s MUSIC revenue will pass iTunes MUSIC revenue in Europe this year, with the US not far behind. So it turns out that that 2012 prediction by Spotify’s CEO was pretty much right on the money.
Apple’s iTunes music business: declining at double digits. Spotify subscriptions: up triple digits, on the verge of passing iTunes altogether. Not a hard call.
What I didn’t realize until I read up on it is that Spotify spends 75% of its revenue on royalties! So streaming royalties may be a fraction of what digital sales are, but it doesn’t appear that Spotify itself is the logjam. It may be that, just as 99 cents a song simply isn’t enough to pay artists at previous levels, neither is $10/month enough to pay artists what they were getting at 99 cents…but then again, I don’t see labels begging for money.
Anyway, I swear to Bessie that if you’ve been watching the growth of Spotify in particular, and streaming in general, and watching the toll it has been taking on iTunes, this looks a super-smart deal even in the short run. It doesn’t require any kremlinology whatsoever.
And, as TC also points out, the deal is even moreso oriented toward the future. Don’t forget what happened when Apple bought Casady & Green SoundJam MP and turned it into iTunes.
Yeah, the headphones business will make Apple even more money than it was making Beats, but to start with Tim’s first words in the interview, “This is all about music.”
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Tim – All great points that I agree with, I was just commenting that the music streaming side only represented only $500M of the overall deal, but there was no way they were going to be able to buy just the streaming side, it was an all or nothing deal. To Apple, the music is the deal (content is king) and that alone was worth up to $3B. The headphones become the kicker in the long term value of the deal.
Michael
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[Michael Phillips] “Tim – All great points that I agree with, I was just commenting that the music streaming side only represented only $500M of the overall deal,”
I wasn’t disagreeing, or thinking you were disagreeing with me. I just found a couple of interesting articles I hadn’t seen before, and they expanded a number of points in my previous post.
I was also making the observation that a lot of people are still scratching their heads about this deal, when I think it’s a slam dunk.
I don’t think I’m being especially insightful or contrarian or anything else. I think this IS the story. I just happened to be one many folks who happened to be looking in the right direction, which even a lot of first-tier media sources hadn’t been. Maybe because Spotify started in Europe, and has only been in the US since 2011 I think. Maybe the news was more visible to people with smaller corners of the industry to cover.
Or maybe it’s just that I’ve been a Spotify subscriber, and I LIKE the idea of Netflix for music. There’s simply no question that this is a more lucrative approach for the future. It doesn’t even require any persuasion, the way that early iTunes did. People are jumping on this model for exactly the same reason they’re jumping on Netflix.
Because this is Netflix for music. I keep coming back to that point because it’s the key to all of this. It’s not an easy business to develop, or Apple already would have…but it’s absolutely critical to Apple’s music business, which is why there were talking to Jimmy and Dre about this for a very long time already.
re: headphones, just a few minutes ago, I saw that Beats accounts for 40% of that market. Right now, Apple ain’t making any money on those white earbuds. Sure, you can buy ’em, but for the most part, they’re a huge expense for Apple. They’ve now got a premium product that they can charge real money for, and Beats headphones don’t have to be any better than they already are for Apple to keep charging $200-300 retail for the top of the line. Pretty much all that Apple has to do to cash in is sell them in Apple stores.
The Beats brand is already strong enough that Apple doesn’t even have to offer them in white with an Apple logo…although I bet that that’s an option in time for the holiday season. 🙂
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I think they are buying the brand/the image/the personalities. While canceling competition in a merging market where Apple would want the hip label. Or maybe its just a tax write off.
Mac Pro, macbook pro, Imacs (i7); Canon 5D Mark III/70D, Panasonic AG-HPX170/AG-HPX250P, Canon HV40, Sony Z7U/VX2000/PD170; FCP 6 certified; FCP X write professionally for a variety of media; teach video production in L.A.
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Sorry I had to edit your post, man. We don’t allow parental advisory music in the COW.
HOWEVER, I left the link there for anyone who wants to piece it together, because it’s a GREAT choice. The perfect observation.
But NSFB language. Not safe for Bessie. 🙂
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[Craig Alan] “I think they are buying the brand/the image/the personalities.”
I swear I’m not grinding on you personally, but this is by far the biggest deal in Apple’s history, it’s by far the most important. It gets to the absolute core of the company that Apple thinks it is today, and the kind of company it wants to become.
So I’m curious. When Tim Cook says “This is all about music,” why do you not believe him? Spotify is passing iTunes in music revenue, doubling year on year, while iTunes is declining faster than even CD sales. Beats Audio gives Apple a chance to stop the bleeding in what had previously been one of the most lucrative parts of their business.
Not that the Beats brand and personalities aren’t a big factor, but every bit of evidence that I’ve seen points to this being, exactly as Tim Cook said, “all about music.”
I’m surprised that so many people are finding this hard to believe. The numbers are easily available to even a cursory Google search, and they’re truly ugly for Apple.
Beats is also not a write-off. They’re profitable, on revenues of $1.5 billion.
So, what are you seeing in either what Tim Cook is saying, or what he’s NOT saying, that lead you to believe that he’s trying to mislead us when he says the deal was about music?
Or are you not reading the links I’m posting? LOL There’s a stupid number of them. I can see how normal people have better things to do with their time. LOL
Not that it colors the “Apple doesn’t care about pros / Apple is completely committed to pros” debate one whit, one way or the other. But for seeing Apple’s view of the big picture, this story is one of the 2 or 3 most important in the company’s history. Again, going forward, I think it will be by far the single most important deal that Apple has ever made.
I love kremlinology as much as anyone here, but I don’t see any reason to believe it’s anything other than what Tim Cook says it is….which yes, includes brands and personalities…but per TC, it’s “all about music.”
As a kremlinologist, though, I’m also happy to be pointed to any numbers to suggest that there’s something else afoot. 🙂
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