Wednesday, May 28, 2014

Two Reasons Apple Paid 3 Billion for Beats Electronics


5/28/14 (S2N Media)  - Apple acquires Beats Electronics for $3 billion, which is less than the $3.2 billion sticker price originally attached to the niche headphone maker.

Why?


Apple Corporation's interest in acquiring Beats Electronics has sparked countless industry insiders to speculate as to why Americans biggest tech company would want to align itself with the popular headphone manufacturer. It is certainly not for their popular headphones. Apple has a deeper Agenda at play here. It starts with African Americans and ends in Hollywood.

Some 71 percent of Black Americans own smart phones-the highest rate of any demographic. Seventy-three percent of black smart phone owners' products are Google related (i.e. Android). Source-Neilsen. One benefit Apple will reap from acquiring Beats will be more saturation into the African American consumer community.

Apple is currently at somewhat of a stagnation point with their current phone line. They have gone head to head with Android's myriad of smart phone models with their lone iPhone. In the ever-evolving world of smart phones and tablets there is only so much mileage a company can get out of one model. In order to retain a competitive share of the market that model is going to have to eventually offer something innovative that its predecessors did not. If that model cannot be drastically improved upon then the only other option is to introduce that model to a new demographic. The iPhone is soon to reach issue # 6. After being Apple's only phone model for seven years the current IPhone represents pretty much all of Apple's ideas for that model. Apple has not run out of ideas, they have just taken the current iPhone as far as they can take it. It is time to tap further into uncharted waters for Apple.

Enter Beats Electronics.

The collective buying power of 43 million black Americans is estimated  to reach $1.3 trillion by 2017. With Dr. Dre on board, Apple gains additional product exposure to Black Americans and a portion of their buying power however, more importantly, their cultural influence. That would be huge for Apple. One only needs to look at the impact the sometimes-controversial African American centric genre of Hip Hop has had on American culture to see one reason why Beats/ Dr Dre would be attractive to Apple.

Not all African Americans endorse Hip Hop as the holy grail of entertainment and music. Then too very few African Americans have been untouched by Hip Hop's  influence on society and culture. Dr. Dre is a major personality in the hip-hop world; having transcended from a successful gangster rapper into a music and business mogul. Dr.Dre is the instrumental influence behind Beats headphones saturating a prime position among the Black American hierarchy of audio gadgets. Johnny come latelys that may shun Hip Hop are sure to relate to something it has influenced. In this case, it is Beats' residual music hardware and streaming services.

An Apple acquisition of Beats  forges a relationship with Dr Dre for Apple. It also aligns Apple with the chairman of Interscope Geffen A&M, Jimmy Iovine.

Jimmy Iovine is possibly the most connected man in Hollywood. His portfolio contains an accomplished history as a music executive and producer, who has worked with Bruce Springsteen, Lady Gaga, U2, Tom Petty, and John Lennon. Iovine has also produced films, documentaries, and TV shows, giving him rare insight into all phases of the entertainment industry.

Iovine could play a few pivotal roles with Apple. According to a report from the New York Post, Iovine could be a special adviser to Apple CEO Tim Cook, while BuzzFeed reports that Iovine could "revamp and run Apples whole music strategy." If nothing else, Apple will surely tap into Iovine's Hollywood clout. Hollywood thrives on relationships, and Iovine's success in the music and entertainment industry has formed some powerful relationships with some powerful people. Iovine can get past doors, and in front of key decision makers that Apple executives cannot.

"If Beats did anything, it got young people interested in audio again," - Jimmy Iovine

Iovine and Dre can get Apple a bigger piece of that 43 million African American buying power pie.

So all things considered, Apple's reasoning for acquiring Beats Electronics definitely goes deeper than headphones. Apple could have simply come up with another line of headphones if that was their quandary. Acquiring Beats will bolster Apple's relationships with music labels via of  the relationship with one of the best deal makers in Hollywood. It will provide an opportunity to revamp iTunes into a platform that is more artists and consumers friendly. For a company that is looking to expand its relationships in the entertainment industry, Jimmy Iovine Dr. Dre, and Beats Electronics are sure shot bets to help them achieve that objective.



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