If Apple were Google or Facebook, its $3.2 billion deal-to-be for Beats wouldn’t be that big of a deal.
But Apple’s Beats move is totally out of character, and causing all kind of twitching. What is Tim Cook thinking?
As I reported last night, Apple seems more interested in Beats for its streaming service than its headphone business. But just saying that doesn’t answer the questions and objections that lots of reasonable people have.
Since Apple isn’t answering them — and who knows if they ever will, because Apple is Apple — I’ve tried imagining what they might say.
As it turns out, we’ll have top Apple executives, including Eddy Cue, who runs Apple’s media business, onstage at the Code Conference at the end of the month.* Maybe they’ll talk then. For now, let’s pretend:
$3.2 billion is a crazy amount of money for a streaming music company! You guys could have bought Rhapsody and Rdio for that much, and had (at least) a couple billion left over.
Yup! Then again, Spotify was valued at its last round at $4 billion, and thinks it can IPO. So its investors would want at least $8 billion for that one.
Here’s another way of looking at it: Beats’ headphone business generates more than $1 billion a year in sales. If you want to argue that a 3x multiple for that business makes sense, then Beats Music costs … nothing!
But anyone can build a streaming music service! You don’t need to buy one at all! Google didn’t, and it launched Google Play Now All Access Absolutely All The Time Anywhere Whatsoever or whatever it’s called last year. It’s really no big deal.
Yup! Then again, we haven’t had much luck building music services since 2003, despite the fact that we ran the world’s most dominant digital music store. Ping is dead, no one cares about iTunes Match, and iTunes Radio has had little impact. So fresh blood isn’t a terrible idea. Jimmy Iovine has a pretty good touch with talent, and Ian Rogers, the Beats Music CEO, might be nice to have onstage at our product events. We just need to get him to put away those Android handsets he uses.
And even if this deal closes, it doesn’t mean you own anything! The value of a media service comes from its licenses — and the ones Beats has won’t carry over to you guys when you buy Beats. That means you have to sit down with the labels and hammer out new deals. What if the labels don’t want you in the streaming business, because it will threaten their download sales?
Yup! We will have to renegotiate. Some people think this will be a real problem — or at the very least, that the labels will try to extract concessions. Then again, the labels tried this with us last year, when we wanted to launch iTunes Radio. And we got what we wanted in the end. Because we’re Apple, and they’re guys who still make almost half their money selling CDs.
Also remember that Universal Music Group, the world’s largest music label, invested in Beats and stands to make several hundred million from the sale. They could use that cash, so they’d like to make it work.
Why do you have to have a streaming music service, anyway? It’s not 2003, or 2008, and the whole point of renting music from the cloud means there’s no more lock-in. All this stuff works on all the devices. You’re not going to buy an iWhatever because it works with Beats, and Beats is still going to work on Android, even after Apple buys it. And it’s not like you guys care about the revenue this thing could generate.
You are handsome, and this is a smart point. I don’t know. Maybe we can make a music service a differentiator, by using it as a real loss leader and subsidizing a big chunk of the $10 a month subscription fee for Apple hardware owners. Buy an iPhone 6, get a year of free music.
The other argument is that we would rather control a service that’s (potentially) important for our customers, instead of ceding control to someone else. On the other hand, there are lots of important apps and services we don’t control. We haven’t gone out and built our own version of Netflix, for instance.
What’s that? You say Netlifx’s market cap is below $20 billion? I wonder what kind of premium we’d have to pay for that one …
Update: Logic aside, this is by far the best acquisition video since the YouTube guys sold to Google. Here’s Dr Dre, caught on camera by actor Tyrese Gibson, via Facebook. There is considerable celebratory cursing, if that’s an issue at your workplace.
Update: Alas. Too good to last.
Another Update! Internet, you did not let me down.
* The Beats guys will be onstage at Code, too. What excellent timing for us and our guests!
This article originally appeared on Recode.net.