Honest question: is there a statute of limitations on what the tech world will tolerate with regards to misogynistic behavior (or bad behavior in general)? Or do people just pick and choose what they want to fight?
I ask because everyone rallied behind RadiumOne's CEO being canned after he beat up his girlfriend [0]. Similar with the Mozilla CEO (granted, the offense was different ... but it's interesting to point out that his transgression happened 6 years ago).
But now Dr Dre is about to become an executive at the largest tech company in the world and people seem to be lauding the move despite the fact of (A) misogyny in his lyrics since his NWA days and [1] (B) him beating the crap out of a female reporter, doing probation and settling a civil suit out of court [2].
Am I comparing apples and oranges here? (pun intended!)
That incident was 23 years ago and he did his time for it. He's also shown remorse for it and wishes it never happened.[0] He's a 49 year old man now and he's been married for 18 years. I think he's past that kind of stuff.
Genuine-seeming change of heart and remorse, including demonstrating it in action, is a big factor for me.
I read maybe one piece on Gurbaksh Chahal, but I never saw any remorse. Brendan Eich not only showed no remorse, he doubled down and dug in with his bigotry.
That's precisely why I asked about a "statue of limitations" ... I am curious.
Thank you for posting that video. I hadn't seen it. I'm generally skeptical of any celebrity's "remorse" when they get caught but it does help frame the current context.
The public remorse (even if feigned) matters. The internet would have forgiven Eich if he had publicly displayed regret with his donation, rather than tacitly standing behind it.
I don't agree with Eich views on marriage at all but it was refreshing to see that he DID NOT do what you suggest (which would've been a very hypocritical thing to do) and stuck to his believes.
Lying about a change of heart is obviously not ok. So, yeah, in a sense it is refreshing to not see someone lie about that. However, there is nothing wrong about stating that you had a genuine change of heart if you actually had one. My personal policy is to always believe that but also look at future actions.
Sticking to your beliefs is definitely not admirable, though. I’m not sure why you are claiming that. Sticking to your beliefs in itself is worthless.
If your beliefs are worthwhile then sticking to them is obviously the right thing to do, if they are not then not. You can’t just say that sticking to your beliefs is worthwhile, no matter what.
His beliefs could have actually changed. But I do agree, I don't want Eich, or anyone, to _lie_ about who they are or what they believe. If he really, truly feels the way he does he should stand by it and accept whatever happens... but if he truly regrets it, the way Donald Sterling does[1](I hope), then he could have stated that regret and all would probably be "forgiven"(scared to use this word implying someone needs to be forgiven for their beliefs... but hopefully I'm getting my point across that I agree)
they shouldn't have to lie about what they believe in, and they deserve all the public scorn they get for having bigoted views. It's that simple. If they somehow come around on their views and admit it was mistaken and wrong, then the media and public would likely not hold their previous views against them anymore. The taint will have been washed off sufficiently.
Different people think differently. That’s what this boils down to. To some distance in time matters more, to others less (or not at all). Both are valid viewpoints.
But, yeah, of course distance in time does matter when judging someone. Obviously. Not for everything, sure, but for many things.
He has learned to control his public image sure, but most of his lyrics of music that he has written, performed, and produced (even presently) seems very much misogynistic.
Look, we've got stories all over about the #YesAllWomen phenomenon on twitter currently. All the women asking for equality and stating that they have been sexually harassed/abused/assaulted in some way. Now in this story we have someone who holds a lot of past and current personal responsibility for sending a powerful message of inequality and harassment/abuse toward women.
Seems you are giving him a pass. I just wonder why women never seem to organize anything significant to oppose accounts and portrayals of mistreatment from entertainment sources such as rap music. Garbage in, garbage out. If people listen to rap music enough, they start to emulate the language, treatment and other thought patterns being drilled into their brains (it's voluntary brainwash/ thought programming really).
Oh the irony of the entertainment (and also the tech) industry...
"If people listen to rap music enough, they start to emulate the language, treatment and other thought patterns being drilled into their brains (it's voluntary brainwash/ thought programming really)."
If young people play shooter video games, they become killers!
"If people listen to rap music enough, they start to emulate the language, treatment and other thought patterns being drilled into their brains (it's voluntary brainwash/ thought programming really)."
You made me login to say answer to this.
No we don't and that's a ridiculous statement. There's rappers who objectify women but that doesn't makes us more sexist than any other guy and you can't just generalize rap like that.
On related news, Battlefield and metal fans are starting to kill people because they can't like something and can't think for themselves.
"If people listen to rap music enough, they start to emulate the language, treatment and other thought patterns being drilled into their brains (it's voluntary brainwash/ thought programming really)."
I think Ben Horowitz will disagree with you, a couple of other VCs as well!
The assault charges notwithstanding (I don't really have an answer for that, other than "it was a long time ago", as per other comments), NWA is an interesting case. If you listen to 'Straight out of Compton', one of the defining albums in "gangster rap" as a genre, it paints a picture of LA which is like a dystopian future - where the world is blacks vs whites, people who live on the street vs cops, and where the options are kill or be killed. No matter how rough you had it growing up in the 70s and 80s LA, you would not have had it anything like 'Straight out of Compton" portrays. This kind of imagery in a film would not lead to lingering questions about the morality of the screenwriter or director, but it does for musicians.
In music we seem less able to separate the story from the artist than for other artistic mediums. Is it because many rappers maintain a public persona which is in line with that presented in the albums (even though it's not in line with the way they really are), or is it because music is still generally considered to be primarily about raw entertainment, rather than storytelling? It's interesting.
Yeah, those are all true. It's also not an open and shut case for films either - if a director consistently made films with antisemitic attitudes, questions would probably be asked about that director. Similarly, people have in the past questioned Quentin Tarantino's very frequent use of the word 'nigger' - though I personally think it's a stylistic choice than a racist one.
At the same time, no one is suggesting Matthew Weiner is a mysoginist because of his portrayal of men and women in Mad Men.
There's a similar split in stand up comedy, where if you wear a costume your "character" can say vile things and people laugh in the knowledge that you don't actually believe them, but if a stand up comedian's "character" looks no different from the actual stand up would off-stage, then people often mistake these things for the person's actual views.
I personally believe that gay people should be allowed the same exact rights as straight people. (Marriage, Adoption, Tax Status, etc...) That being said, I don't believe what happened to the Mozilla CEO was right. The amount of intolerance that was shown towards him was equally as bad as his own intolerance, perhaps worse.
I personally once thought that we should ban gay marriage. As I grew up and gained more understanding about homosexuality my view totally changed. I think we definitely have to give people the chance to change. I would guess that most of the people here on HackerNews grew up thinking that homosexuality was a choice and some sort of perversion. However, I would bet that most of us have changed our views as we have either accepted who we are or have had friends that were gay help our understanding grow.
As far as Dr Dre, I had never listened to his music or really followed him in the news. I would probably error on the side of a lot of the other comments, that we should give him a break because it appears that he has changed. My two cents.
Discrimination still exists, even for things some think are solved(e.g. race, gender). Often change doesn't occur unless some are forced to change, even while gritting their teeth.
CEOs are public figures, and if the public doesn't like what they stand for, they can certain;y ask the organization to make a change. Mozilla stood for openness and freedom, which is counter to the actions of the CEO. It's not intolerant to tell a company that their CEO is engaging in activity counter to the message of the organization, and ask for their removal.
a) Dr. Dre is a performer. Rap, distasteful as you may find it, is performance art. It's the same as gangster movies. Would you object to Apple working with Scorcese? It's a character, albeit slightly autobiographical, but not much different than someone like Bukowski, IMO.
b) The Dr. Dre - Dee Barnes incident took place in 1991, almost 25 years ago. Should an isolated incident, for which he has made amends, haunt the man for the rest of his life? I don't think comparing it to the RadiumOne CEO, a current crime, is reasonable.
c) It would be rather hypocritical for Apple to profit off the musical talent of young black males creating "offensive" music, but not deign to work with them due to some moral qualms.
Indeed, 25 years is a long time and I think if Dre had attacked a reporter from the WSJ for leaking the Beats acquisition the deal would have been off.
Side point: beating up a female reporter doesn't make you a mysogynist (it makes you an asshole). Wasn't sure what you meant because of your wording.
Our tolerance for entertainers seems to be much higher than for executives. And I doubt many in the tech world think of Dre as a "real" executive. He's there for marketing reasons, but doesn't have much oversight of the day-to-day and the damage he can do is limited. This perception might be wrong.
Well … in isolation you are right, but violence against women can be an expression of misogyny. Or not. It depends. (Though I would agree that focusing on that discussion is not particularly worthwhile. I would focus on the violence.)
I think dre has the potential to affect things more than say how alicia keys or will.i.am affect things at their respective companies. Certainly when it comes to marketing to minorities and such.
I assume he'd be mysogynist if him beating the reporter was related to the reporter's gender. In any case, the ex-CEO didn't serve time so I'd say he got off pretty easily.
One thing I feel the need to address, as does N.W.A. in many of their songs...
Bitches != All Women (when it comes to oldeschool rap lyrics at least)
A "bitch" in ebonics/early-hardcore-rap is a scandalous/hated woman for well known reasons. Like the local gold digger or crack whore which was very prevalent in their societies which they strongly felt the need to address. They're not referring to all women as being bitches.
This is explained quite eloquently in N.W.A.'s "A Bitch Iz a Bitch" which was produced by Dr. Dre. and DJ Yella [0][1]
Well OK then, lets just ignore all the rest of the disgusting and derogatory things that N.W.A. state about women. Not just Dre when he was in N.W.A, but in material since then that he has authored and produced. This isn't something that happened and stopped 20 years ago. This is who he is.
Do you seriously think someone is going to listen to this garbage for an hour each day and then go into society and be polite and respectful to women? You think it doesn't spill over? I know from personal experience that is does. I had friends who started to change the way they talked about and treated women after becoming heave N.W.A listeners. Years later they told me that they felt that it influenced them negatively and that the influence was pervasive. They regretted listening to that trash.
I don't understand people. You think watching porn regularly doesn't affect how you think sex should be (and what you expect from it)? Sex can never live up to a porno, it's a fantasy. Do you think that porn doesn't contribute to sexual harassment/abuse/assault? It's not hard to find lots of men's blogs, books, movies, ETC whom it has heavily affected. Surveys show that it's negative influence is widespread.
Influential things like gangster rap and porn that go into our brains break and form neuro-pathways. They actually shape how we think long term. They are mind altering in a negative way.
People think of them like alcohol. You can drink it now and it will be out of your system in time for work tomorrow morning. This actually is not the case though. These thoughts and images will NEVER leave our minds.
Why is this all a big deal? well here on HN, equality comes up quite often. Women's right to be treated equal, to be free from sexual harassment, and from being treated as inferiors. Do you think Dre's influence in years past and presently has helped women's equality or hurt it? I think the answer is quite obvious.
If you are female, can you imagine being his co-worker, or admin assistant at Apple? How uncomfortable would that be?
>Do you seriously think someone is going to listen to this garbage for an hour each day and then go into society and be polite and respectful to women?
Absolutely. That "someone" you mentioned is me.
>I don't understand people. You think watching porn regularly doesn't affect how you think sex should be (and what you expect from it)? ....... etc .... etc ....
What are you talking about?
>Why is this all a big deal? well here on HN, equality comes up quite often. Women's right to be treated equal, to be free from sexual harassment, and from being treated as inferiors. Do you think Dre's influence in years past and presently has helped women's equality or hurt it? I think the answer is quite obvious.
I really couldn't care any less, I was only commenting on the fact that "Bitches" in an N.W.A. song is not referring to all women in general.
>If you are female, can you imagine being his co-worker, or admin assistant at Apple? How uncomfortable would that be?
I can literally think of 10+ females that I know who would jump at the chance to work alongside Dr. Dre for FREE.
Even after calling them Bitches on stage, he experienced no shortage of women trying to sleep with him after every show he performed.
Try listening to some N.W.A. sometime, you never know, you just might like it!
There no "the tech world", there's just people who are, indeed, choosing what they do and do not want to fight about. If you feel so strongly about this, get people involved, get a Twitter campaign or boycott going, and just like in every other such situation, if enough people make noise then you may or may not get results. Much like open source, if you see a problem and do nothing, that's on you, not the community.
There's no inherent need for balance (like you seem to want: https://news.ycombinator.com/item?id=7623043 ) in people exercising their free speech. If it bothers you, do something about it.
I disagree that there's no "tech world". Maybe that's the wrong term but hey.
I do feel strongly about bad behavior (and I try to do some small parts)–but not about the lack of balance. I just find it intriguing and possibly worthy of discussion. I'm inclined to call it "hypocrisy" but maybe that's not the correct term.
I'm naive enough to think I can change what people choose to fight. Like open source, sometimes you find a bug but don't know how to fix it. What can you do besides submit an issue in GitHub?
yep get a couple of ppl worked up over an issue and you can get most things changed. The question is why aren't ppl rallying around this? And I think there are many reasons why.
Maybe Im just old, but HN seems pervaded with this kind of 'right on' ness, or competitive self righteousness, i don't even know what to call it. Sort of a che guevera hat wearing teenager kind of flavour. Makes my eyes roll.
If you're young you probably don't know what I mean.
No over analysis of this reply please, my eyes might not come down again if I keep doing it. :)
Honestly, it was the only interesting thing I could think of with regards to this news story and it's something I've pondered since the Apple/Beats rumor started. It was an honest question and I just wanted some smart replies–not the top spot.
If this was reddit, that'd be called 'karmawhoring' - posting comments that play to the crowd while being tangentially related to the story, in order to get a big pile of internet points.
I get that juvenile Redditors find pictures of cats amusing - I find it less easy to grasp why a technical hacker/start up community is less interested in the technical/business aspects of a major tech deal than the somewhat unsurprising revelation that a famous rap artist said mean things about women (many years ago from what I [now unfortunately] understand).
Because we are a (generally) well educated, grown-up, empathetic community who realise that hacking/start-ups are great, but not the be-all and end-all of life, and that some things are important to stand up for/against even when only tangentially related to the topic at hand.
Let me be blunt, we are all adults. He is in a favored minority category and as such he gets a pass unless he offends and even more favored minority group, simple as that. Society is shaped by those whose voices are the loudest, unfortunately some have learned to shout down others to the point there is no discussion permitted. When one side won't stop shouting to the point society accepts their position as the norm then where is society?
The most interesting reveal from Tim Cook's quote is that he only mentions the music service and the talent, not the headphones.
That's super interesting. It basically means Apple looked at this like a typical Apple aquihire / component technology purchase (of the service), that just happened to have a multi-billion dollar profitable accessories business attached to it. That makes it a very unique kind of deal.
Wild hypothesis. Amazon started as a book distributor. Now it is fighting to become a publisher. iTunes + iPod started as a music distributor. What if it now has ambitions as a label? How would one build that out of Cupertino?
One would start with a fringe, fragmented genre, to serve as a beachhead. Fragmented by not flat - there should be a node near the top of a hierarchy which can be acquired and leveraged.
$1.3 billion in 2013 headphone sales justifies a $3 billion valuation neatly by itself. But this acquisition certainly comes with interesting optionality.
You'd have to be pretty insane to spend $3b to get into the content industry in 2014. First, it's an industry that's been plummeting for a decade, secondly, the entire recording industry is worth about that much, and thirdly, the entire concept of making money from copyrighted works of art is under threat.
The meat of this deal is the headphones business [1]. I'm opining on the transaction's optionality for Apple. A lot of attention has been given to the streaming service. I'm pointing out another joker Apple may have considered to hold, if not immediately play.
The main evidence you give in support of that claim is that the service doesn't have a lot of customers. But that is true for literally just about every other Apple acquisition. Apple buys technology and talent in the early stages or in component form. Like Tim Cook said there's 70+ other examples of tech & talent acquisitions to look at, and this is just another one of them.
It makes sense financially for Apple, sure, but only in the sense that it doesn't lose them money to purchase the attached headphones business. That business would not even register as a blip in their future growth to be the main goal of the deal.
His other quote was how he was looking forward to Iovine & Dre working on revolutionizing the music industry. That's not about headphones.
We are asking how much in earnings (E) would Beats need to earn to give a $3 billion price (P) no more than a 14.9x P/E ratio. We then turn those minimum earnings E and turn them into a quick-and-dirty margin by dividing E by sales.
Apple made 170 Billion dollars last year. They are insane not to try to spend chump change on the music industry. The own the delivery of sound from that industry INTO a vast % of the consumers of it.
Apple is going to own the entire experience of media consumption for some % of their customer base.
They will be the label, the distribution, the hardware and the content. A 100% apple audio feed, all wrapped up in a tight little box tied directly to your bank account. Every click costs you something.
Apple has never been one to nickle and dime their customers. While I have little doubt the model will have some component of "you pay for what you use", you can be sure it will be done in such a way that 1) much of the cost is buried in the cost of the hardware and 2) if doesn't feel like every click is costing you something.
It's plummeting because it's run by in outdated ways by companies that haven't adapted to new technology. A forward-thinking company that embraces technology would have some advantages.
Pandora and spotify are structurally unprofitable because of their licensing problems/payments. Apple is %500Bn company-- big enough to become a label--has the marketing expertise (iTunes) and Capital ($X0Bns cash) to be a next-generation 'label'. Or maybe I'm missing something?
If Apple (or Google) had wanted to buy out the record labels and their catalogs, they could have done so years ago. They obviously didn't, probably because it's a dying industry that isn't nearly as profitable as their current products.
The very idea of a 'record label' is a relic of the 20th Century, when all recorded music was distributed on heavy physical artifacts.
Not sure I follow. Who said anything about buying out the record labels? Apple can just <become> a label-replacement. There is still a need for a distribution/production/promotion service layer in music biz.
Music is now competing for attention with apps, push notifications, emails, SMS, etc. Listening to recorded music was at one time something to do in and of itself. Today it's something that's done almost exclusively in the background.
At one point they had such an agreement, but according to wikipedia, Apple Inc (the iPhone people) bought the trademark rights to "Apple" outright and relicensed them back to Apple Corps (the record people) as of 2007:
When that all settled, Apple Records gave Apple Computers all rights to the 'Apple' name and Apple Computers will license the name back to Apple Records for their continued use. I'm sure this involved a fairly substantial sum of money, but Apple could almost definitely start a competing record label.
I'm wondering if there is more here than meets the eye. The purchase price seems actually pretty reasonable at least by today's valuation standards. Do we know what the profitability is on the current sales?
Wikipedia on this seems to indicate that the popularity is being drive by product placement and branding deals as opposed to actual product quality (which, while high may not be enough ib its own to even justify the "reasonable" valuation. (Also Nike has been quite successful long term with this practice).
1. The actual design and production isn't done by Beats. It's done by a partner company, that isn't being bought. Beats is a promotional and marketing company. They aren't a particularly amazing one, but they have done ok. Certainly not innovative enough to want Apple to aquihire them.
2. The service has a tiny userbase, and doesn't have any technology apple does not.
Apple will be producing the headphones now and Apple will be building the streaming service. So, IMHO, this is a brand purchase, plain and simple. There's nothing else left. Tim Cook was dissembling because he didn't want to admit he just bought the rights to a name.
"Unique" is one way of putting it. Another is "messy."
If they wanted the headphones or the talent or the streaming service, they could have bought any one individually, or purchased a number of competing services that are better in each of those spaces.
The fact that everyone is so confounded by this acquisition makes me think that Apple purchased something non-public.
I don't believe people are actually confounded by this acquisition. The headphones are wildly profitable and the Beats brand is incredibly strong. This deal is easily justifiable.
Seems like those days, if they haven't received press release and a press package the only thing analyst can say is that they are puzzled.
Thankfully in a few weeks it will be time for the annual batch of rumour about the next iPhone. That has been almost a year since the last article predicting the 5in iPhone and the iWatch.
If it was company X that was doing the acquisition, no one would care too much. It's the Apple involvement that makes it confounding, since Apple doesn't do acquisitions of this sort. They don't buy brands, they buy tech or people.
I can't think of a single headphone business that is anywhere near Beats. The headphones are crap, they used to be relabeled Monster headphones, for example. It doesn't matter. The brand is successful. Coco-Cola is just sugar water, it's the brand that makes the money. Same here. There aren't other equivalent brands they could purchase.
Curation and discovery-- they have celebrity and music curator created playlists. They also have an interesting Pandora-like radio where you can essentially select a mood and it'll build a playlist for you.
Most streaming services just use echonest... so quality probably is pretty similar across the board. You may get variations depending on your own personal preferences and the seed artists you provide.
I'm distinctly underwhelmed by Rdio. I basically started trying it because of the good Chromecast support, but their recommendations are not particularly good (I listen to a bunch of electronica, and one of the (good) choices it presented me with was a Polish artist; shortly afterwards I got a bunch of 70's Polish pop music, and it took me a day of thumbs down and skipping to get it to stop; similarly, I somehow managed to be subjected to a prolonged assault of Irish folk music where the only connection I've managed to spot was that one of the artists have a couple of track that are somewhat similar to a couple of the track of an artist I like a few other tracks of).
And their mobile app is horrible. The amount of skipping is awful; you'd think they could buffer more. Especially when you have synced tracks that it could use to "fill in". Even though I've synced a number of tracks to my mobile, it skips or fails halfway through even those tracks when my network connection is bad, unless I've marked myself as offline. Add on no ability to play my local music, and I find myself almost certain to switch from Rdio to my local player on my phone within 10-15 minutes.
It's nice for when I'm home, using it via Chromecast, and I pick exactly what I want to play, or have the patience to try to beat its recommendations into submission, but I doubt I'll stay a user very long.
I used my trial of Beats Music for awhile -- I will admit, it had the BEST discovery and automatic playlist creation of any service I've ever used (Rdio, Spotify, Pandora, iTunes Radio) -- you really could be confident when you suggested a song it would build a list of songs that you weren't skipping.
To be fair, Pandora for me was a magical wonderland of new music discovery for even the first 6-12 months of use. Now? Not so much, and I find myself often wishing Pandora was better at several things.
It seems a bit absurd to pay $3 Billion for an acquihire/component deal, but Apple has $145 Billion in the bank and just bought the most popular non-Apple name in music.
It's not that absurd when you factor in the profitability of the headphones business. It's interesting, not because Apple would overpay for what they wanted (they didn't), but because they looked past the most obvious aspect of Beats from a market valuation perspective to the relatively more startup-y aspects of it.
Isn't this SV bias? Beats is startup-y? With 300 employees and $1.5bn revenue?
Beats drives a successful marketing business (much like RedBull). I think Apple is buying that. Apple doesn't need to acquire expertise on how to build and sell luxury items.
No, in fact Tim Cook mentioned he was looking forward to what Phil Schiller could do to help Beats product marketing, not the other way around.
Cook also said he was looking to the Beats team (Iovine, Dre) to build revolutionary new products for the music industry. So yes, that is in fact why they bought the company, to figure out the next big new technology products & services for music (is iPod still a "luxury"?)
As for the revenue.. that is exactly why I call it a unique deal. Yes, Apple seems more interested in the nascent music service and the team than in the multi-billion dollar accessories business that probably every single other company on the planet would pay more attention to. I mean they're not throwing it away but it definitely got a minor mention relative to the team & music service. For Apple the headphones business doesn't really move the needle much.. they're looking at the next $100B and that's why they're more interested in the "startup-y" aspects of Beats.
the deal seems less absurd if placed in the context of apple's overflowing war chest. even if you ignore the hardware and streaming assets, and assume the deal was purely an acquihire, the deal would be comparable to a company like zynga in 2013 [1] buying a startup for $30M. whether the deal represents the optimal allocation of $3B is another matter, but the magnitude of the deal for apple -- unique in its size -- is not crazy.
They could always just spinoff the headphones side of the business at a later date if they choose to. The revenues there were close to $1 billion last year, so it isn't unlikely. After all, Google kinda did that with Motorola Mobility, right?
In other interviews (1) he actually mentions music first, then the talent, than the hardware business. Sounds more like PR story-telling than an actual assessment of why they made this move.
The music angle is touchy-feely, the talent angle makes it seem like Apple got something that's exclusive, and the profitable hardware business is the solid base to calm investors.
This makes it the third fashion (aqui)hire for Apple, after Angela Ahrendts (Burberry) and Paul Deneve (Yves Saint Laurent). But 3 billion for a fashionable headphones company/music service? I don't know, the feeling I get of this deal is like Nike buying Crocs in 2007, when Crocs shoes were at the peak of their popularity.
Are all of their headphone models awful or just the lower end models? I know that most of the reviews I've heard are of the lower end models and they are pretty much universally panned as a fashion accessory. However, the high end Beats headphones seem to be pretty good; well built with a flat response curve.
Apple redefined the mp3 player market, the ultraportable laptop market, the smartphone market, the tablet market, and now they're buying a company that reinvented the higher-end headphone market. Is it smart of a brand that has traditionally created their own iconic images to buy another cultural icon for $3 billion? I don't think so.
Maybe this gets used a lot, but would Steve Jobs have done this? Or would he have created his own headphones and music streaming service?
I'm willing to bet anything this is going to be seen as where Apple's golden age began to wane.
EDIT: I said "higher-end" because it's perceived to be, even though audiophiles would never agree. The consumer market believes that Beats and Bose are king though. That's another reason that I'm against this purchase; Apple isn't even buying anything technically higher end (Sennheiser, Beyerdynamic, HiFiMan, what have you).
1) The "premium mobile audio" market is going to be the next huge market where Apple and Samsung face-off. It's no coincidence that Samsung announced their new line of premium headphones just a week before the Apple-Beats rumors began: http://www.samsung.com/uk/news/local/samsung-launches-level-...
2)Despite the tech communities denial, Apple and Beats are very much in sync. Beats is first and foremost a fashionable hardware company for the mass markets, which APPLE IS TOO. People in the tech community, and Hacker News more specifically, are having a hard time grasping this deal because they still see Apple's roots as a niche tech company of superior quality, whereas they've long moved to a mass market company. For a long time Apple was seen in a similar light as Beats; they charged a premium for commoditized product (personal computers with operating systems) and were heavily driven by marketing. Wether Hacker News wants to accept it or not, they're both predominantly mass market fashionable hardware companies that charge a premium for their ostensibly superior products. Beats has created a justifiably large brand, whether techies want to accept that fact or not. As the dominant hardware company, Apple is just acquiring a fast up and coming trendy hardware and accessories company, just as happens in every other industry. This deal makes sense.
I agree but I think there’s a third reason. This Jimmy Iovine guy is no joke, he’s like the Johnny Ive of music and Hollywood, and the ability to work out deals with media companies is priceless.
There's zero high-endness about Beats headphones. They're all right (at least if they were priced around 30% of their current price), but really, they don't sound particularly good.
Factually true, but as they created and own pretty much the entire market for $300 headphones, one has to concede they have the title of high end headphones... high end doesnt necessarily mean highest quality.
Audiophiles (broadly speaking, even if - like myself – they really don’t want to be called that) and people working with audio bought those, hardly anyone else. Those aren’t the people who buy Beats. That’s a totally different (and much smaller) market.
Getting people who don’t care about how their music sounds that much and who don’t work with audio to seriously consider buying $300 headphones, that’s the achievement.
Those people used to either use the headphones that came with their devices, or they bought some cheap headphones (way under $100, probably even way under $50). Beats managed to attract those people to their products and managed to sell them to them for substantially more than they were previously ready to spend on headphones.
That’s what’s meant when people talk about Beats creating a new market. Buying expensive headphones just wasn’t a mainstream thing before Beats.
Honestly, I don’t even have much of a problem with that. People spend more money on better headphones. Sure, they spend too much for merely average headphones, but those are already better than anything they had before and once they buy into them I think it becomes way easier to convince them to try other headphones. Who cares if they spend too much?
I guess it's a win-win for everyone: Beats got these people to spend $300 on headphones, then these people realize that they want to get real quality for their money and they go get something better :-).
I think the idea is that Beats expanded the market for $200-400 headphones. Yes, Sony sold headphones in that range, but they didn't sell them to every high school student who wanted to look cool.
No, at that price they sold to professionals and audiophiles who wanted the sound to actually sound properly, not muddy bass overflowing the mids and highs.
Apple definitely bought the brand, not the headphone tech. Otherwise with such a cash stash they would have bought any of Beyerdynamic, Grado, Sennheiser, or the newer entries to headphones like Marshall (the Major is so-so but the Monitor is awesome)
Audiophile pretentiousness aside, the article barely even mentions the actual hardware. Probably bought them for the music service & industry connections
This just further underlines the point that Beats are not actually high-end headphones, but fashion items. As such, they're incredibly vulnerable to changing tastes. In the areas around me, Beats have already plummeted from prominence or popularity among young people and cool people.
I've seen that happen, as well. People who can't really afford it pay a couple of hundred for a cool red B on their headphones, then they wisen up and realize that a cool S is a better choice.
True, but at one stage, Sony almost cornered the market for a specific pair of DJing headphones...until everyone realised they actually weren't too good, but still 'wanted to look cool'.
It hadn't occurred to me until I've been reading through these postings, but it's true: high-end, expensive headphones have traditionally be tragically ugly, almost as though it was a badge of honor to suffer the ugly headphones, because one knew they were getting superior sound quality.
While I'm still such a fan of sound quality that I will continue purchasing terrible-looking headphones, I can't deny that Beats are sexy as hell.
Except Beats created a new market - a group of people who couldn't actually afford $300 headphones but bought them anyway. Just as you see people who buy iPhones and iPods but can't really afford them.
Reminds me of some long-early post when hackers gf begged him to buy her a new iPhone5. Instead the hacker somehow skinned and make her old iPhone4 to look like iPhone5 and she didn't even noticed.
High end is all about perception as indicated by price. Technical quality means almost nil.
But even on technical quality Beats bring something new to the table. They have a built in amp for christ's sake. They lowered the bar for amped audio to something the masses would use. It is a typical story of reducing friction/barrier to entry and reaping rewards.
Every conversation I see about beats speaks of them as garbage and pure marketing etc etc. But this is entirely missing the point of what made beats a success. You can choose to bury your head in the sand or you can open your eyes and actually learn something from the beats phenomenon.
The fundamental mistake that audio geeks make with Beats is to think that the best headphone delivers a flat response.
Beats headphones are not designed to deliver music accurately, they are designed to make it sound cooler.
Beats is like the Instagram of music. Yeah, you'll get an objectively higher quality from Photoshop, but Instagram is easier to use and makes things look cool.
Apparently there are quality issues with Beats, but that is exactly the sort of problem that Apple is well-equipped to solve.
Surely this could be said about many other high-end fashion type brands. Expensive Nike trainers aren't worth what they sell for, most designer handbags are worth a fraction of what they sell for. These items also don't have any real technical merit to justify the price.
Fashion runs as a top-down economy. Most of the high-end designers are the ones driving innovation, and other designers/large corps soon imitate these styles a few years later for lower prices.
Even within Beats own line there are the decidedly "lower" and "higher" end models.
The interesting thing, to me, about this is that Beats (the headphone, not the streaming music service) has the high price and is currently high-school chic, but similar things have been said about Apple. In Apple's case they're aided by the product's function being on par with the design.. The Beats stuff seems to consistently fall short of the quality of sound offered by Sennheiser and Sony's stuff.
One thing I've learned over the last 10 years in the tech world vs. the last 25 years in it, is that the mainstream (via its marketing catalyst) will override traditionally-held beliefs about the uses of technology and the words used to describe it.
Hence the public talking about "wifi" instead of "wireless ethernet connected to the internet."
The public doesn't know and doesn't respect the world as it was before the products became available which they feel express themselves.
I am/was with you in believing that high price doesn't mean "high-end," but that association has now become useless for communicating with the rest of the world.
The same can be said for the word "decimate." I've given up trying to use it properly and/or correct anyone. It's over. Also using "data" as plural. The world doesn't want a plan, it wants a dream.
That's an interesting definition. I think of it as a synonym of "upscale," which refers explicitly to high price but does generally have a connotation of high quality as well.
I agree 100% You get people listening to Beats headphones that pump so much bass that they destroy the mid and high end. It's stupid to pay that much money for a decidedly low-end product. Just because it's loud doesn't mean it's good. And beyond that, the actual physical quality of Beats headphones is absolute rubbish. I unfortunately bought into the hype my first year of college and picked up a pair and returned them a week later as they were falling apart and sounded like dirt. Bowers and Wilkins are far superior in basically every way.
I totally agree. The question I ask is whether Beats is the kind of headphone that Steve Jobs would personally design and use. The "steve" test seems to guide everything else they build, so why not extend to headphones.
The way I see it, the answer seems to be "no." The headphones are bulky, the logo gaudy - just not Steve. The advertising - think of the superbowl ads that rankled Seattle fans - just not really Apple's style or ethos.
I can't underestimate Apple - they are a wildly successful company, and may well see something great that I can't. Guess we'll just have to see.
Even if beats isn't his aesthetic, I find it difficult to imagine Steve being able to stomach a lower quality product underneath.
Jobs would have wanted products perhaps like Bose - expensive, overpriced but ultimately good quality underneath. Beats is lower middle quality underneath all the plastic and Jobs wouldn't be able to sleep at night if he thought anything lower middle quality ever shipped out of his factories.
The audio fidelity of Bose speakers and headphones aren't any better than that of Beats. They're rightly derided in the audio community as sub-par equipment sold for far too much.
> would Steve Jobs have done this? Or would he have created his own headphones and music streaming service?
I don't know, would he have? You asked the question in such a way as to imply the answer that no, he wouldn't, but you can't actually know that for sure. Also, we shouldn't be holding Apple to the standard of 'Steve Jobs was perfect so if he wouldn't have done this then it's bad'; Jobs made his share of mistakes anyway.
The confusing part is that Apple is spending $3bn on a company that makes mediocre, overpriced headphones with lousy sound quality. It makes no sense to me that they would buy a company like this when they have the money to create their own headphone line with better technology, equivalent or better design, and overall better result, likely at a lower price.
I guess we'll have to see where things go from here.
We don't know what he would have said, but what he did say before he passed away was that he explicitly didn't want people at Apple to ask what Steve would have done, he wanted them to do what they felt was right.
The deal would make no sense whatsoever if not for the music streaming service. It's interesting that they get the headphone business along with it - my hope is that they will gradually beef up the quality of the headphones in the process.
They also get the legendary founder of Interscope records (who ran it for 25 years) and Dr. Fucking Dre as part of the deal to serve as Apple management. That's got to worth something.
One possibility: Apple intends to bring its quality and engineering expertise to bear on the Beats product line. They might be thinking that they can take the #1 seller and preserve that position indefinitely by decreasing the price and improving the quality. Apple's supply chain can probably result in better build quality (or a reduction in price for the current builds), and its engineering can probably bring better audio quality.
If "Beats Suck" turns into "Beats are Really Good, and Less Expensive", then they will lock up a good deal of the higher end headphone market.
There may also be some interesting exploration of what's possible with a headphone-based wearable. Plenty of room in that particular fashion accessory...much more so than in a watch.
> There may also be some interesting exploration of what's possible with a headphone-based wearable. Plenty of room in that particular fashion accessory...much more so than in a watch.
Let's look at this from a different angle... What if Apple already has a super cool headphone based wearable tech.
Maybe Apple RND came up with something like "Google Glass minus the visor" a while back. That something could well look like a chunky set of headphones, right?
Now let's take a look at the current wearables market... The high profile items are things like Glass, Pebble, Samsung Gear. And they're almost all painfully uncool (outside of Sillicon Valley, anyway).
If Apple were going to launch its chunky iHeadphones, it would know that it'd be up against the "dork factor." So it would make sense to spend some cash to negate that. If so, purchasing the coolest headphone manufacturer you can find, and tying their brand to your upcoming tech, makes a lot of sense.
> There may also be some interesting exploration of what's possible with a headphone-based wearable. Plenty of room in that particular fashion accessory...much more so than in a watch.
While I applaud your imagination, this seems to go against Apple's vision of elegance and miniaturization (i.e., the perfect technology is invisible).
>I'm willing to bet anything this is going to be seen as where Apple's golden age began to wane.
I would argue that they've already been left behind on the music front. iPods are dead, no one wants to buy tracks on iTunes for $1.29, iTunes Radio was too little, too late. A lot of Apple fans are proudly using Spotify or other services on their iPhones. Heck, even the musicians associated with Apple are getting uncool.
That said, Apple hasn't had much impact on other types of music delivery--although it's probably worth noting that the business models associated with those other types of music delivery are a lot less clear than selling individual songs is.
I think so. Apple built the iPod and purchased SoundJam because they realized the world had changed. Buying CDs in stores and feeding them into your CD player was inevitably going to be replaced by digital media players/sales. iPod/iTunes filled this demand for many years but now the world has changed again. People don't spend $200 on iPods anymore but they will spend $200 on Beats headphones. They don't like feeding digital media files into their digital media players -- streaming is much easier. They also don't care much about owning music anymore or understand why a song costs 99 cents when they can goto YouTube and listen to it for free.
I think a lot of people would still argue that. I've seen a lot of talk in the press about how Cook is still under pressure for not releasing any revolutionary new products after Jobs' immediate pipeline.
Yes, it's definitely easy to cry doom, haha. But what have we seen since Jobs? Iterations of successful product lines. Faster, thinner, better battery life in general. But where's THE AppleTV that the media has been rumoring about for years? Or the wearables that grab headlines every day?
I'm sure there were plenty of products (AppleTV, smartwatch) in the pipeline before Jobs passed away. The question is, outside of those long-rumored about products, what next? This purchase of Beats just seems like a bad omen of acquisition rather than invention.
Maybe I'm wrong and the Apple-Beats combination will create a new product that changes how we look at headphones. Maybe I'm right and Apple is losing their vision. Only time tells and either way, it'll be interesting to look back on these crazy decades.
I completely agree with this. Jobs would've already made a subscription service and tried different headphones to sell by now. This is more of an aquihire and it's unimpressive.
If you watch MKBHD's videos on youtube, he shows why beats headphones sound good and why there's plenty of others that sound better for a cheaper cost.
Basically it's not really a move Jobs would've done but that's what happens when your co-founders aren't running the company anymore. It's like the NFL draft.
I'd say Google is going up and Apple is going down.
I'm not willing to bet anything on that, one week before WWDC in a year where Tim Cook has already gone on record saying that Apple is going to launch "new product categories".
Yes, Beats is considered to be "high end." Beats are seen as a symbol as status for kids. Owning a pair makes you "cool." It's similar to how many kids want an iPhone or a pair of Jordans.
Oh come now, that's a bit ridiculous. Interiors are upgraded, accessories are upgraded, often the suspension is upped as well. Outside of that, many of the Lexus models have completely redone power trains (F line). The IS line is on a completely separate platform from whatever the equivalent vanilla toyota would be.
I would have gone with something like Ford and Lincoln, where they really are almost completely rebadged.
As a Toyota fan, who recently looked at both a Ford Escape and a Lincoln Navigator...
You mention "interiors are upgraded, accessories are upgraded" - a 2010 Escape looks and feels cheap. Plastic everywhere, everything creaks and squeaks when you lean on it a little. The Lincoln has (actual) wood paneling, things like retractable running boards and even a nearly ten year old Navigator feels nicer, so I'm not sure how you can say it's not like the Toyota-Lexus difference.
The consumer market believes that Beats and Bose are king though
To be fair, from what I've read Bose has the best noise cancelling system, albeit at a high price.
I'm not incredibly persnickety about audio quality and don't think I can tell the difference among various "good" headphones. But I have a pair of Bose headphones and like them.
I recently got Bose QuietComfort 20i for my trip from Europe to Australia. It was expensive, but so worth it. That constant humming noise on the plane usually makes me incapable of doing anything. With these earphones—you flip the switch and the magic happens. Especially on the flight from Singapore to Perth which was very smooth (no turbulence) it felt like just sitting in a room and listening to music. Watching movies on the plane also became much more enjoyable, with headphones offered by airline you need to turn volume almost to the max. You need an adaptor for airline headphones jack though.
I get a little kick out of things like this because I just know Steve Jobs would flip shit if he were still alive. I really don't see how this is a smart move for Apple. I'd love if they prove me wrong, but I don't think they will.
If this was the very stupidest thing Apple has ever done--a massive colossal waste of money that needed to be written off--they would still have $183+ billion cash on hand that they could cry into.
The meat of this deal isn't likely the streaming service. Beats Music had only 111,000 subscribers as of March [1]. Compare that to Spotify's 10 million paying subscribers, 30 million non-paying users, and $4 billion valuation.
The deal's financial logic is driven by Beats's $1.3 billion business (in 2013) of selling high-priced headphones. Given Apple's P/E ratio of 14.9x earnings [2], the acquisition would make sense so long as Beats were running at least a 15% profit margin on those headphones. That's a surer basis for a $3 billion bet than a nascent streaming service.
Your argument makes sense, but it kind of falls apart when you consider that Beats aren't actually good headphones, to the point where The Wirecutter actually did an article[1] where they listed all the various Beats products and then provided examples of better deals (some of them with significantly better quality at half the price).
I don't understand why Apple would buy a headphone company that makes pretty but lousy products whose price is only justified by the brand name; Apple gets that unjustified criticism already, they hardly need to reinforce it by acquiring a brand to which it actually applies.
> I don't understand why Apple would buy a headphone company that makes pretty but lousy products whose price is only justified by the brand name
My wager: demographics. Apple's customer base is greying [1]. Beats likely has a younger centre of gravity. I'd also be willing to bet Apple has less penetration amongst black Americans than does Beats.
While I'm sure Beats' younger user base is enough to make this worthwhile for Apple, I wonder how much they've actually expanded in terms of buying power. I doubt many young teenagers are spending hundreds of their own dollars on these headphones, it's the parents who are already pretty much Apple's demographic.
>> "company that makes pretty but lousy products whose price is only justified by the brand name"
Isn't that something people accuse Apple of doing? Maybe lousy is pushing it a bit but Apple has always been accused of charging high end prices for pretty but mid-range/mediocre hardware. I don't agree with this characterisation but it's one that's always been around.
The difference is that people in the know (for Apple, the kind of people on HN, for Beats, the kind of people on Head-Fi) would say that the characterization is wrong for Apple, and right for Beats.
You have to remember the difference between your perception and the public's perception. The public has no idea what good audio sounds like. They've probably never heard of The Wirecutter. They are not audiophiles.
Beats, _regardless of its actual quality_, is perceived as high quality. That's why people pay for the headphones. That's why they make so much money. That's why Apple bought them.
They are considered fashionable and high-end. It's the perception that counts.
They have 40% of the headphone market. Obviously those 40% don't agree, don't know or don't care how horrible Beats headphones actually are. That 40% is all that matters - and it's what makes the company worth $3 Billion.
You can make the best headphones in the World but if another company controls 40% of the market - they are the one that's going to get bought for billions of dollars, not you.
>> "Beats Music had only 111,000 subscribers as of March [1]. Compare that to Spotify's 10 million paying subscribers, 30 million non-paying users, and $4 billion valuation."
I don't see how these numbers are useful. Beats is US only right now and has only been around a few months. Spotify has been around 6 years and is available in a huge number of countries.
Also - Beats doesn't have a free option which will probably stop a lot of people trying it.
At this point it doesn't really matter. Apple is late enough to the game that they don't have time to wait another 2 years while they build a good streaming service. Purchasing was the only way to get to market fast and what better than an established music brand, with the deals and software, just launched so that they can make whatever changes they want without too much uproar.
The money the headphone business makes for Beats really helps justify the deal though. Even if things flop with the music streaming service they can make their $3bn back relatively quickly through headphone sales.
The numbers seem to indicate you're right, but anecdotally I've used iTunes Radio and the Beats app. Beats is a vastly superior experience. I'm excited to see Beats integrated into iTunes Radio.
Wow. Hold on. The meat of this deal is absolutely the streaming service. Apple NEEDS streaming. I buy an iPhone: I pay $100 to have ALL THE MUSIC ALL THE TIME with that phone, for the lifetime of the device. Awesome! It's like Amazon Prime but better.
And Apple NEEDS that; for them to negotiate their own streaming service with the majors + merlin it would have cost them dear - probably some sort of huge advance or equity stake (because that is the basis that streaming deals are done on these day). Apple is too rich to do that, so it's probably cheaper for them to spend $3bn on a pre pack streaming service than it is to negotiate their own deals. They are sitting on $170bn in cash. The majors don't budge on streaming - they want big fat advances, and they want equity. There is NO WAY that Apple can pay a percentage advance that will satisfy the majors ("we can't do this for 0.1% of your cash on hand, because that means that next time someone comes to us, they will want the same terms but they will only have $100m on hand") and they can't give them equity - because they value their equity too highly. It's no surprise that this deal is 90% cash and 10% stock, or thereabouts. The Spotify/Echonest deal was absolutely the reverse - 90% stock, 10% cash, because the value to Spotify of that defensive acquisition was worth way more to the Echonest investors in an upside dictated on a future Spotify IPO. $90m of Spotify stock today turns into a whole lot more in a year when they float.
Oops.
Anyway.
For the headphones, Beats did $1.5bn in revenue last year. Let's assume that the average revenue per unit is somewhere in the mid to late hundreds - $150 - $180 per unit. At $150 - $180 per unit that means they sold somewhere around 8,500,000 pairs of headphones. Gosh. Check my maths there, because I thought it was insane too.
In 2010 Billboard reckoned the global headphones market was worth about $670m on 70.8m units sold - so that's about $9.50 per unit. Beats have massively outperformed this expectation. And thhis means Beats owns 10% of the headphones market, give or take.
There have been various tears-down/BOM costings of Beats which have brought them in at about $20 - $30 per pair - or less. A huge part of the cost of Beats is in the marketing - the endorsements, the adverts (hello, Super Bowl spot at a supposed $8m) the billboard campaigns, the product placements. None of this comes cheap. So let's assume that of their 8,500,000 pairs of headphones they spent maybe $200m - $225m or thereabouts to actually buy the pieces, and manufacture the cans. Let's also assume that - yes - they made 15% margin. On revenue of $1.5bn that means they are making $225m profit. So the manufacturing costs and the profit are about the same - which is fair enough; a 100% markup is pretty decent. But that means that a HUGE element of the value of Beats (and a huge element of that $225m profit on $1.5bn sales) is created in the aspirational value created through marketing - and the marketing costs LOTS money. Remove that marketing spend, and you have a business that doesn't look so shiny. If 90% of the value of the headphones is created by the marketing, then suddenly headphones that can retail at $180 or so per unit, on a per unit cost of $25 need to drop down and retail at $40 or so - which, coincidentally, is about the price point for SkullCandy and other fashion/aspirational headphone brands. So I think the headphones business is worth about 10% - 15% of what Apple is paying in that $3bn transaction. At most. Let's call it $450m, to be generous.
So yeah. I really don't think the headphones business is a thing.
I imagine for a while they may either incorporate Beats into a "premium" Apple headphones range - or they will drop the Beats brand almost entirely and sell the consumer headphones business off to someone else. Whatever happens, I'd doubt Apple will be using "Beats by Dre" as a brand. It'll be entirely integrated into the Apple brand - "iTunes On Demand" or something else.
Whatever they bought, it was not the headphones business. It probably wasn't the streaming business either - if we assume that maybe the Beats Super Bowl commercial netted them some more subscribers for the Beats streaming service and we call it a very generous 200k subscribers, that means that Apple has paid (once we deduct the $450m for the headphones business) something like $12750 per streaming user.
Spotify is worth something like $4.5bn at the moment (or, at least, it was until tonight, before Apple potentially decimated that market) and they have 10m paying subscribers. So that's a cost per user of $450 to buy that business. Spotify pays out 70% of every dollar of revenue to rights holders, giving them 30% of their revenue to cover their costs and make a profit. They say that they will pay out $1bn to rights holders this year. Which means that they are expecting to bring in about $1.4bn in revenue. So they have $400 to run their business and make a profit - only, of course, they don't make a profit. So the 10m subscribers + ad-supported users bring them $1.4bn.
If you want to buy Spotify today, it's going to cost you $450 per subscribing user.
Let's assume that there comes a point that Spotify has maybe 40m subscribers and they bring in $5bn in revenue a year. That gives them $1.5bn to run their business, and maybe at that point they turn a profit. If they return 15% also, then they're making $225m a year profit. That's $5.63 profit per subscriber per year. It's going to take a long time to make back the $450 you spent per user.
The value to the Spotify in buying the Echonest was that nobody else could have it.
The value to Beats in being bought by Apple is that nobody else wanted it.
The value to Spotify in all of this is that it makes it a three (or maybe four) horse race: them, Apple and whichever of the remaining players Amazon buys and bundles into Amazon Prime Instant Music. And then we'll see what Google does with YouTube Streaming.
For everyone else, it's a race to the bottom: so long as Apple can offer "iTunes On Demand" for a dollar less than anyone else, they win: they have a one click route to market, and they have a product that becomes more appealing to more people by the addition of a streaming service.
Basically, as far as streaming music goes, we're all fucked.
Here are some links to vaguely back up some of what I've said above. It's late, though, and I can't reference everything. You can pretty much Google it all though.
For the headphones, Beats did $1.5bn in revenue last year.
[...] Gosh. Check my maths there, because I thought it was
insane too.
The only source I can find for the $1.5 billion figure is an article from July 2013 quoting an anonymous "knowledgeable source" [1].
On the other hand, an article from January 2014 quotes a marketing research company saying "Beats controls 27% of the $1.8 billion headphone market" [2] which is a drastically different claim.
Personally I take the words of anonymous sources and 'market analysts' with a big pinch of salt.
Except the majority of Beats headphones sold are much less than $450. Looking around, most of the catalog is $250 or less. Even the article says "up to $450".
>> “Could Eddy’s team have built a subscription service? Of course,” he said. “We could’ve built those 27 other things ourselves, too. You don’t build everything yourself. It’s not one thing that excites us here. It’s the people. It’s the service.”
From my usage of the Beats streaming service it stands head and shoulders above everyone else because of the people it has creating playlists. They are really fantastic especially when compared with Spotify. Apple could build a streaming music service but they need the right people to build a good one.
Interestingly, I find the exact opposite-- Beats is inferior to Spotify (or other competition such as Rdio) in my opinion.
This isn't necessarily because of the curated playlists, but it's the service as a whole. Beats is quite rudimentary in terms of music management, and requires way too many taps to add multiple songs to playlists or even just shuffle play a playlist. When I'm trying to listen to music I know I like, Beats falls behind. The curated playlists are kind of a distraction with my usage, and I personally wish they'd focus less on the celebrity playlists and more on letting me listen to music I like.
Of course, as you demonstrated, Beats is a hit or miss because of its focus on discovery/curation over music playback. It all depends on the user and how her or she prefers to listen to music.
Disclaimer: I do still subscribe to Beats, but only because of the AT&T deal that makes it cheap for 5 users.
> Beats is inferior to Spotify (or other competition such as Rdio) in my opinion.
> Beats is quite rudimentary in terms of music management, and requires way too many taps to add multiple songs to playlists or even just shuffle play a playlist.
By comparison, I am a Spotify subscriber, and Spotify until recently didn't even have a way to 'save' albums wholesale (which is my preferred way of listening to music). Instead, you had to save each album as its own unique playlist, which got old fast. Now they have introduced a way of 'saving' albums and browsing through them by artist/album/song, but this new feature still hasn't propagated to all their clients (e.g. their Roku client). So it's not like Spotify is that much better.
Obviously people have their preferences but there is a point you made that puzzle me:
>> "too many taps to[...]just shuffle play a playlist."
I don't have my phone on my but isn't there just a shuffle button on the play screen and I thought another one at the top of a playlist?
Personally I have an account with Beats and Spotify. I keep my Spotify one for desktop usage. I don't like using any streaming service through the browser but Beats really sucks atm. I have problems with songs not playing again after I've paused.
To shuffle a playlist, you actually have to hit the play button for the playlist so it begins playing in order. Then, you enable the shuffle feature in the now playing screen, and then you can skip past the first track to a random one.
I just checked and don't see any specific shuffle buttons, but if there's one I'm not seeing then that'd make me happier.
It's not a huge deal, but it's still one of those things I shouldn't have to do manually in this day and age-- shuffle is a rather standard feature.
Just checked and you're right. It's something I use on Spotify all the time but I guess I've never noticed on Beats - mainly because I'm listening to new curated playlists mostly so shuffle isn't a big deal there.
Even though Cook said it's not about building it, "it's the people. It's the service", is $3 billion worth what is essentially an acquihire?
EDIT: Right, it's still a profitable business regardless and I should have touched on that. But I don't want to see big tech companies acquire just for profit. They become behemoths that die slow deaths. I want to see Apple continue to reinvent based on their vision. I don't want them buying safe businesses. It's the reality of the world, I guess. I just firmly believe that Apple could have created their own spin on this market for less than $3 billion and beat out Beats.
The reason for the purchase might be the people, but it doesn't mean the people are the only thing determining its value. They had > $1b in revenue last year, and that can't just be ignored when determining a fair value for the company.
I don’t think anyone is arguing Apple bought them for the revenue. Apple is making enough money, they really don’t need this tiny revenue stream.
However, if they really only want part of Beats, they still have to buy the whole company, revenue and all. They have to pay for it.
This is less of a problem than it seems, though. One plausible scenario is that Apple just keeps the hardware part of Beats separate and making money, while getting all the rest of the people working for Beats on board.
This is a large acquisition, but it’s not super huge and mostly so big because Beats successfully makes and sells hardware. If they keep that part separate and independent of Apple in the future this might actually turn out to be a tiny acquisition, more in line with Apple’s past music acquisitions. Think Lala: http://en.wikipedia.org/wiki/Lala_(website)
Beats has a well known brand, and their headphones business is doing pretty well for itself. It's in a whole different league from the usual "buy a startup with a tiny market share and shut down their operations to repurpose the engineers six months later" acquihire.
True but if they're the best people that might be the only way to get them. The company makes a lot of money so you have to take that into account - it's going to continue make a lot of money under Apple. I think enough that they could make that $3bn back in 5 years on headphone sales alone even if the streaming service didn't work out.
Edit:
>> "Right, it's still a profitable business regardless and I should have touched on that. But I don't want to see big tech companies acquire just for profit."
I agree. I don't think Apple was buying for profit. But when you're valuing a company the fact they are really profitable has to factor into the price. I read they made almost $1bn last year selling headphones so $3bn isn't a crazy valuation.
Yes because it's a profitable business and will be accretive right away. The financials provide a baseline for why this deal is good, Iovine/Dre and Beats Music is just a free call option.
setting aside the streaming service and the profitable hardware, bear in mind the context if you evaluate the deal purely as a acquihire. apple has about $160B in cash [1]. $3B for an acquihire is comparable to zynga in 2013 [2] purchasing some startup for $30M.
Acquihires are by definition evaluated on the perceived market value of the team, which is very rarely proportional to the cash reserves of the buyer. The existence of wealthy suitors like AAPL might shift market values (for any prospective buyer) for tech talent upwards, but no matter how much cash they have in the bank, AAPL can certainly acquihire top talent in the $30m range if that talent is showcasing their skills at unprofitable startups rather than highly profitable brands, in much the same way as they have no need to offer employees salaries' two orders of magnitude more than comparable level employees at companies with a mere $1.6M in the bank.
It would have to be seriously impressive talent to be worth $1.6Bn when you compare it with what Apple paid for NeXT...
Is it just the ability to discover new music that has people in love with BS?
I find that Google Play does a fantastic job on my phone, and for any sort of real use I fall back to my Sansa MP3 player. I personally dislike others making my playlists, so perhaps I'm far outside the demographic.
Is there something I'm missing here, some sort of killer feature perhaps, that validates the huge valuation of this acquisition?
For me it's the curated playlists that make it great. IMO opinion they do a fantastic job. I've been getting more and more into Neil Young recently. I just opened Beats and they are showing me a Neil Young album I might like on the main page. I've also started listening to Albert King and they have an 'Intro to Albert King' playlist there too. It's a bit hit and miss but about 75% accurate. When I use Spotify I typically have to think of something I'd like to hear. I find their discovery page awful. When I open Beats I have an album or playlist that I like selected in a few seconds. It seems to be pretty good at learning my tastes and I'm also pretty happy that it's not just recommending similar stuff but a broad enough range of music that I'm expanding my horizons a bit.
The amount of people in this thread who are unable to understand the brilliance of this deal is astounding.
What they bought is not one thing, but all the components that came together in the right way, at the right time.
* Beats Music, a music service that is truly different from the others and is in my opinion better in many ways.
* Legendary founder of Interscope records Jimmy Iovine (who then ran it for 25 years) as part of Apple management.
* Dr. Dre, enough said.
* The amazing people behind the curation of the playlists on Beats Music.
* A powerful brand, though this part is still a grey area for me. It remains to be seen how they handle the brand.
* A strong command of the market. In 2012, NPD Group reported that Beats had a market share of 64% in the U.S for headphones priced higher than $100. It's likely even higher now.
* Hardware that's flying off the shelves as noted above. They have the opportunity to improve the engineering of this hardware to make a truly great product while retaining the amazing branding.
All of those things came together into one place in one deal. It's incredibly smart.
Apple made 170 Billion dollars last year. They are insane not to try to spend chump change on the music industry. The own the delivery of sound from that industry INTO a vast % of the consumers of it.
Apple is going to own the entire experience of media consumption for some % of their customer base.
They will be the label, the distribution, the hardware and the content. A 100% apple audio feed, all wrapped up in a tight little box tied directly to your bank account. Every click costs you something.
Exactly. You're absolutely right. They will try to control the flow right from the time artists make the sounds to the time the audio hits the listener's ear.
Just as they control an app from the time it's written to the time the user uses the app on their phone (while taking a nice 30% cut of proceeds).
Apple paid ~10% of its $35b 2013 free cash flow* for Beats, a company with a software-side growth story and actual positive free cash flow of its own driving investment in the software piece.
Apple: spinning off cash, buying companies that themselves spin off cash.
A delight to see P. Oppenheimer's conservative approach thriving. Financially, Apple is a thrilling company to watch.
* N.B. That's actual GAAP free cash flow. It is pure cream. What better than to accrete to FCF while acquiring, as noted by @onedev, some terrific assets, personnel, and goodwill. This is a smart and cheap move.
Poor Logitech, a company I've always had a soft spot for. They used to be the king of the peripherals and even bought Ultimate Ears for $34 million back in 2008. Their audio business is probably their lowest margin segment and now Beats gets acquired for almost double Logitech's enterprise value. The power of brands...
Logitech never did themselves any favours. I lost my soft spot for them when they bought Slim Devices and then quickly ruined the Squeezebox with bloat and feature creep.
The original Squeezebox was elegant and had so much potential.
There's a lot of comments in here about the business case. Beats is undeniably moving a lot of product. Speaking purely for my personal feelings though this purchase makes me value Apple less.
While people say Apple is merely overpriced hardware bought because marketing makes it cool, I think this is wrong, it's also really good hardware. But Beats is that criticism of Apple come true -- overpriced crap made popular with marketing. Ironically I don't even mind the sound profile of Beats -- high fidelity cans are too flat for me personally. But even for someone like me I can get that same sonic effect for a fraction of the price with other brands.
Actually, FWIW I think lala's technology (matching songs based on the audio waveform instead of the file's metadata) was used to underpin iTunes Match. It is the component where you match your local library to Apple's library in the cloud, and then only upload anything that Apple doesn't already have.
Lala was way more than iTunes radio. It had low priced cloud music purchases (e.g. $0.29 a song), unlimited cloud streaming for MP3's you already owned, free album listens for 1-2 plays, an integrated streaming player for third party sites, and more. It was way ahead of its time and competitors, but it was killed by Apple and used for almost nothing.
I just want to go on record with an entirely different idea as to why Apple is buying beats. They're going to make a label.
Why Apple doesn't do streaming: Apple hates committing to something unless it's absolutely perfect. There are numerous examples, but NFC technology is a good one that comes to mind. Granted, they've made mistakes, like Mobile Me, but that was due to poor implementation, rather than immature technology and infrastructure.
A similar problem has been in their way as far music streaming goes. The obstacle in their path to connecting consumers to content are labels (the same applies to cable companies and iTV, but that's a different story). Labels are greedy, difficult to deal with, and a general nuisance who provide little or no value. Meanwhile, the actual content providers, i.e. songwriters and performers, view labels as a necessary evil, but no one believes for a second that needing them is ideal.
The vision: The idea is that Apple is looking to buy Beats to start their own label so they can cut out the label, who is an unnecessary middleman. My reasoning behind this is that Beats is a very strong brand, mainly because it's been run by two very savvy music industry veterans who know how to "produce", in every sense of the word. They're more of a household name than any other headphone maker can claim. If any company had the power, skill, and recognition to pull off disrupting the record industry, it would be beats. The only problem is they don't have enough money, do you know who does? Boom. It's as simple as that.
Just take a look at this http://cdn.macrumors.com/article-new/2014/05/beats-royalty-s.... and tell me, from Apple's perspective, what the problem is with a music streaming service? The labels get all the money and the artists get none. All Beats has to do is say, "Boom, we're starting a label and we own the streaming service, so you can have a 30% cut per play and we'll keep 70%". If you were an artist and you could literally improve your earnings by 10x wouldn't you? $248K vs $22K is criminal.
Just imagine, from Apple's perspective, what this would open up? Essentially, it's total vertical integration, a pipe from artist to audience, unadulterated by stupid bullshit. For example they could have complete coordination of everything from the original recording quality of an album to specialized super high end digital to analog converters in the hardware - from lossless media formats that were recorded especially for that format to headphones that are tuned to provide optimal performance.
This is a complete bargain and no ones talking about it. It will serve as a prototype for what Apple would love to do to the television industry (think Apple acquires HBO, a win win for both), and they're doing right under everyone's noses because no one can think big enough. Apple would never, in a million years, purchase a company like that for so much money if they didn't have a very good idea of how it would pay off 10x.
And remember, this is the same company that seriously considered becoming a carrier, in order to launch the iPhone.
"Apple hates committing to something unless it's absolutely perfect" Like Newsstand, Game Center and Passbook? This is the biggest misconception about Apple. While this is very much the case for their hardware products like iPhone, iPad, Mac pro and Macbook, it is not the case with software or services.
What is wrong with any of the three you mention? Beyond the lack of support for them, they have all performed well. Most of the issue is getting third-parties interested.
I use Newsstand to subscribe to a car magazine from the UK (Top Gear) that would otherwise cost me >$100US/year to have delivered here. The BBC has done a great job with their magazine. There are plenty of other magazines and newspapers that fit in just fine here. But again, I think part of the problem is that magazines and newspapers overall are a dying industry - why would you want to read a magazine when you can just visit a website daily/weekly and be caught up?
Game Center is another that has had limited opportunities to shine. Partly Apple's fault because they don't integrate with Android, but a beautiful example of how to use Game Center was the Letterpress game awhile back. I believe Letterpress was an iOS-only game. If it had been a cross-platform game, where many developers go now, then GC would have been useless to them. But the features are there, if a developer decides to use them. The scoreboards and friend matches and achievements are used in many iOS games as well.
Passbook is the one that has hurt the most due to a lack of third-party interest. I personally use the Starbucks card whenever I happen to be want one of their drinks. There is plenty of anecdotal evidence that the MLB and airline tickets are also well done. I wish more stores with loyalty cards would release Passbook apps, but again, where is the desire for your favorite grocery store chain to create a Passbook enabled app? Hell, most grocery stores you are lucky to even see an online inventory and this week's sales on their website.
I don't confuse "perfection" with "third-party participation".
The green-felt casino aesthetic wasn't just ugly it was insulting. The new toddler bubbles theme is marginally better.
It's unreliable (it fell down repeatedly when Letterpress launched) and to this day every time I start any game I have to wait at the menu because I know if I start playing before Gamecenter loads it will lag out during gameplay. The turn notifications are all over the place, I get one then start game and where's my turn? Close app, retry, repeat. Maybe one of these times it will be there? The multiplayer model doesn't handle many different kinds of games and methods of combinging players so if you don't use similar mechanics like Letterpress you are often out of luck. Good luck relying on it for anything with more than 2 players -- half the the time it just bombs out. Or disconnects players and then freezes the game for minutes before informing the the other clients. Even basic stuff like Leaderboards went for years without the ability for developers to manage in any respect whatsover -- so every single game had a top 100 of entirely hacked scores and was stuck that way.
As mentioned elsewhere, Apple Records no longer owns the rights to the name.
With Iovine involved, I think the above idea is a distinct possibility. Though it's funny how Macklemore made a song about his dislike for Iovine's attitude and hard bargains. The same could be said of Jobs for part of his life; he could be genuinely unpleasant, and drive very hard bargains.
That's interesting that Apple Records no longer owns the rights to the name. I thought a historic namesake like Apple Records would hold onto its name dearly. It would be extremely interesting/awesome if Apple indeed begins the Apple Record label. Steve Jobs would probably roll over in his grave in excitement...
It's well established that Apple is one of the pioneers in the digital distribution of music; however, iTunes hasn't been keeping pace. The portion of Apple's online services revenue from iTunes has been steadily declining since Q1 of 2011 [1]. The Beats' headphones product is definitely profitable and responsible for a big chunk of that $3 billion valuation; however, I doubt that was Apple's main motivator.
It seems as if Apple is doing this to both acquire the talent involved as well as the Beats' streaming service. As mentioned in the article Apple usually prefers the smaller segmented purchases, so I'm guessing Beats approached negotiations with an all-in-one mindset. As to the why Beats instead of another streaming service, it has to be some combination of the talent being just that good or the Beats' streaming service has something that distinguishes itself from others. What that is I don't know. I've heard about their mood based playlist feature and find that pretty interesting. I would like to see what happens when the physiological effects of certain music genres are researched, and then applied to develop this mood playlist concept even further. Thoughts?
Why didn't Apple just buy MOG when it was a separate thing? Or, why not just buy rdio now?
This is more than an acquihire or however you want to spin it. I'm sure right now Beats headphones are printing money and the people at beats are good at marketing youth culture.
Apple needs the ability to sell expensive tech to teens to be cool. Beats manages to sell overpriced headphones to teenagers all the time in huge numbers, even if it doesn't make financial sense. It's like designer jeans or Oakley sunglasses or... the iPod.
Bottom Line, if this was beats by Jack Dorsey, everyone would be jumping up and down but its a black rapper and everyone is confused. The first thing everyone said was a difference in culture. My experience at a fortune 50 marketing firms let's me know right away that this is a premium brand across the globe. Their headphones are priced at such a high premium and their brand recognition as cool and worn by celebrities and top sports stars, across sporting lines from european soccer to swimmers coming out at the olympics.
Lets cut the bullshit, we all know why everyone is scratching their heads, because this is not a 22yr old hoodie wearing white hacker. Close your eyes and picture "Beats by Jack Dorsey" and u will know what i am talking about. Some fool will post how this is not true, downvote the post et cetera, but it is what it is!
The headphones are crap, way too much bass and the build quality is pretty bad even for low-end headphone. But they have fooled people into thinking they are a premium product, somehow. Is that why Apple bought them? I hope we don't start getting "iPad with Beats audio" gimmicks.
The iPod is in a longterm decline. Low margin music streaming has replaced purchased mp3s. I think music has changed from the main event in the Apple ecosystem to a minor attraction.
It seems like Apple is looking backwards and defensively, not forward and offensively on this one.
Music is probably one of the top 3 things people do on their Apple devices so it's important for Apple to control that experience in some way. If people are leaving behind purchasing in favour of streaming they have to download an app on their new iOS device before they can listen to music. Apple would rather the music experience be built-in.
I don't understand why everyone has focused so much on the beats headphones side of the acquisition instead of the fact the this is a way for apple to get into the streaming market without having to negotiate from the get go with labels who have been weary of them gaining even more control in the music market. When they negotiated the deals for iTunes they were not even a blip on the radar in the eyes of record labels. Sure, the headphones are the immediate value with the price margin, etc. But, in the end, I see the biggest benefit being gained from an apple backed streaming service.
REMEMBER, Apple didn't create iTunes, they bought it.
Me neither. They could be doing so much smarter acquisition for that money, or much less, such as buying Imagination, and creating their own fully integrated SoCs, with both CPU and GPU.
AAPL had a market cap of about $20bn on December 20, 1996 when they acquired NeXT for $429mm + 1.5mm shares of AAPL (the share price on 12/20/96 was $23.50). So the deal had a total value of $464.25mm, or about 2.5% of AAPL's market cap. $3bn out of $537bn is a couple orders of magnitude smaller.
I think the key to this deal was the Beats brand. Apple was facing a very difficult task in trying to modernize/redefine the iTunes Store. They attempted to bolt on various new things like Ping, iTunes Match, iTunes Radio, etc but it ended up being a convoluted mess. Too much legacy baggage there. I suspect Apple will preserve the Beats brand and use it as the launching pad for all their next-generation media services/products. iTunes Store will continue on as the place you go to buy things while Beats will clearly be the place you go to stream things.
This is smart and as a non-apple user it could suck if Apple starts blocking cross-platform compatibility. Beats is actually MOG which is an amazing services that specialized in streaming 320's mp3's. It sounded amazing and I think it currently sounds better than Spotify at high quality. What sucks is what do people do if they currently have a beats sub but really don't have anything to do with Apple.
I have to say my Beats completely suck. I've had to get them replaced twice and I still get these annoying buzzing sounds. Forum-reading has led me to believe that this is a really common problem.
I'm disappointed that Apple would buy such a crappy product, and pay so much for it.
An interesting thing about the deal is that people are coming up with positive stories and opinions about Beats just to justify the price, believing that Apple can't ever be wrong. We 'll see about that ...
Check out my beats phone yo... Apps, iOS and a different demographic of people to sell cheaper iOS devices to. Watch the iPhone 5c quietly disappear from ever being an Apple product, it's not one.
Cheaply made beats phone will happen and it'll sell more units than you can imagine. It'll have to be cheaper than the iPhone, not by much. I didn't say beats headphones were cheap now did I? Keep up.
$3 fuckin billion. Eventhough everyone here goes through their post-hoc rationalization by claiming that "beats is a great company", it's way way overpriced here.
Curtis "50cent" Jackson seems to have followed in Dre's footsteps and now has his own headphone line http://smsby50.com/ . Wouldn't it be interesting if they were acquire by a Google/Microsoft/Amazon?
That would be funny, but I think that makes less sense than Apples move. I've heard a lot of speculation, but nobody really knows what Apple's plans are.
When the rumour was $3.2bn he wasn't going to become a billionaire despite his video stating his was - so now the price has dropped he certainly isn't one.
Also - what does Beats have to do with his career in hip hop? Hip hop didn't make him almost $1bn, an electronics company he co-founded did. It just irks me every time I see 'hip hops first billionaire'. It has absolutely nothing to do with hip hop.
Yeh I get that, but it's a music genre. It's like a web developer winning the lottery and being called the first Javascript millionaire. :) /s Sorry I totally get what you mean it just irks me for some reason and I can't help but comment regardless of the down votes.
Hip-Hop, love it or hate it, is a lot more than a music genre. It's an entire subculture that includes a significant proportion of the population, particularly the young.
ehhh i understand where you are coming from, i mean honestly there are multiple existing Hip Hop Billionaires. They are the owners of the record labels, radio stations, etc. Dre is really 'just' the first hip hop artist to make a billion. And from what is currently known, he wont really be a billionaire after the deal. really its just a case of hip hop bragadocio
It's not really an announcement for a developer conference. Plus aren't these things typically announced after the markets close (which wouldn't be possible at WWDC)?
Eh, Apple is Apple. They announced iTunes Radio at WWDC 2013, and that doesn't have an API or anything for developers.
And I'm not sure about announcing acquisitions outside of market hours. Apple does plenty of acquisitions that they never announce. Beats would probably need to announce being acquired if they were a public company, but they aren't.
Someone posted a video of Dre drunk at a party confirming the deal. I'm guessing Apple is in damage control mode at this point and would have liked to announced it later.
I don't know the etiquette of posting here, but I just wrote quite a long response to a comment by JumpCrisscross who says that the meat of the deal is the headphones business rather than the streaming business. I don't know if that comment best lost in a tree of other comments, so I thought I'd repost it here. But I disagree absolutely with that point of view.
The meat of this deal is absolutely the streaming service. Apple NEEDS streaming. I buy an iPhone: I pay $100 to have ALL THE MUSIC ALL THE TIME with that phone, for the lifetime of the device. Awesome! It's like Amazon Prime but better.
And Apple NEEDS that; for them to negotiate their own streaming service with the majors + merlin it would have cost them dear - probably some sort of huge advance or equity stake (because that is the basis that streaming deals are done on these day). Apple is too rich to do that, so it's probably cheaper for them to spend $3bn on a pre pack streaming service than it is to negotiate their own deals. They are sitting on $170bn in cash. The majors don't budge on streaming - they want big fat advances, and they want equity. There is NO WAY that Apple can pay a percentage advance that will satisfy the majors ("we can't do this for 0.1% of your cash on hand, because that means that next time someone comes to us, they will want the same terms but they will only have $100m on hand") and they can't give them equity - because they value their equity too highly. It's no surprise that this deal is 90% cash and 10% stock, or thereabouts. The Spotify/Echonest deal was absolutely the reverse - 90% stock, 10% cash, because the value to Spotify of that defensive acquisition was worth way more to the Echonest investors in an upside dictated on a future Spotify IPO. $90m of Spotify stock today turns into a whole lot more in a year when they float.
Oops.
Anyway.
For the headphones, Beats did $1.5bn in revenue last year. Let's assume that the average revenue per unit is somewhere in the mid to late hundreds - $150 - $180 per unit. At $150 - $180 per unit that means they sold somewhere around 8,500,000 pairs of headphones. Gosh. Check my maths there, because I thought it was insane too.
In 2010 Billboard reckoned the global headphones market was worth about $670m on 70.8m units sold - so that's about $9.50 per unit. Beats have massively outperformed this expectation. And thhis means Beats owns 10% of the headphones market, give or take.
There have been various tears-down/BOM costings of Beats which have brought them in at about $20 - $30 per pair - or less. A huge part of the cost of Beats is in the marketing - the endorsements, the adverts (hello, Super Bowl spot at a supposed $8m) the billboard campaigns, the product placements. None of this comes cheap. So let's assume that of their 8,500,000 pairs of headphones they spent maybe $200m - $225m or thereabouts to actually buy the pieces, and manufacture the cans. Let's also assume that - yes - they made 15% margin. On revenue of $1.5bn that means they are making $225m profit. So the manufacturing costs and the profit are about the same - which is fair enough; a 100% markup is pretty decent. But that means that a HUGE element of the value of Beats (and a huge element of that $225m profit on $1.5bn sales) is created in the aspirational value created through marketing - and the marketing costs LOTS money. Remove that marketing spend, and you have a business that doesn't look so shiny. If 90% of the value of the headphones is created by the marketing, then suddenly headphones that can retail at $180 or so per unit, on a per unit cost of $25 need to drop down and retail at $40 or so - which, coincidentally, is about the price point for SkullCandy and other fashion/aspirational headphone brands. So I think the headphones business is worth about 10% - 15% of what Apple is paying in that $3bn transaction. At most. Let's call it $450m, to be generous.
So yeah. I really don't think the headphones business is a thing.
I imagine for a while they may either incorporate Beats into a "premium" Apple headphones range - or they will drop the Beats brand almost entirely and sell the consumer headphones business off to someone else. Whatever happens, I'd doubt Apple will be using "Beats by Dre" as a brand. It'll be entirely integrated into the Apple brand - "iTunes On Demand" or something else.
Whatever they bought, it was not the headphones business. It probably wasn't the streaming business either - if we assume that maybe the Beats Super Bowl commercial netted them some more subscribers for the Beats streaming service and we call it a very generous 200k subscribers, that means that Apple has paid (once we deduct the $450m for the headphones business) something like $12750 per streaming user.
Spotify is worth something like $4.5bn at the moment (or, at least, it was until tonight, before Apple potentially decimated that market) and they have 10m paying subscribers. So that's a cost per user of $450 to buy that business. Spotify pays out 70% of every dollar of revenue to rights holders, giving them 30% of their revenue to cover their costs and make a profit. They say that they will pay out $1bn to rights holders this year. Which means that they are expecting to bring in about $1.4bn in revenue. So they have $400 to run their business and make a profit - only, of course, they don't make a profit. So the 10m subscribers + ad-supported users bring them $1.4bn.
If you want to buy Spotify today, it's going to cost you $450 per subscribing user.
Let's assume that there comes a point that Spotify has maybe 40m subscribers and they bring in $5bn in revenue a year. That gives them $1.5bn to run their business, and maybe at that point they turn a profit. If they return 15% also, then they're making $225m a year profit. That's $5.63 profit per subscriber per year. It's going to take a long time to make back the $450 you spent per user.
The value to the Spotify in buying the Echonest was that nobody else could have it.
The value to Beats in being bought by Apple is that nobody else wanted it.
The value to Spotify in all of this is that it makes it a three (or maybe four) horse race: them, Apple and whichever of the remaining players Amazon buys and bundles into Amazon Prime Instant Music. And then we'll see what Google does with YouTube Streaming.
For everyone else, it's a race to the bottom: so long as Apple can offer "iTunes On Demand" for a dollar less than anyone else, they win: they have a one click route to market, and they have a product that becomes more appealing to more people by the addition of a streaming service.
Basically, as far as streaming music goes, we're all fucked.
Here are some links to vaguely back up some of what I've said above. It's late, though, and I can't reference everything. You can pretty much Google it all though.
Why is this comment downvoted, look at the top comment, this is why i hardly set foot on HN any more, the top comment is some guy talking about a 1991 fight but its the top comment. Sigh!
What's uncontroversial about that? The iTunes Store did make (legal) digital music mainstream. That's not to say it was the first store of its kind, but it was certainly the first to have widespread success.
CDs are digital music, everyone was listening to digital music before apple did anything. People were using walkmans long before the iPod.
The point is trying to credit apple for "digital" music as opposed to "analog" music. That is just absurd. Credit them from making a business out of selling digital music, but not for making digital music popular.
You're being pedantic. The author was clearly not talking about media formats like CDs, which store music digitally as an implementation detail but are still a physical object that you buy just like records and tapes. It seems pretty clear that the author is talking about music whose primary form is purely digital, like MP3s that you could download on your computer and transfer to your iPod.
Put another way: Anybody can tell you what a CD looks like — round, shiny, flat, about yea wide — but nobody knows what an MP3 looks like, because it is a purely digital format. The difference of physicality is the salient part here.
Completely fair point – I was reading "digital" in this context as something ephemeral, like a computer file (mp3s etc.), rather than a physical object such as CD, even though as you say CDs are digital too.
I think the author is referring to digital music stored in electronic storage (e.g. flash memory, hard drive) versus physical media (e.g. compact disc).
Sure, the author may of had the right intentions, but in the end after everyone has read that statement there will be plenty of people that take away from it that Apple invented digital music. Wording is important.
I think he's getting at the fact that the iPod and iTunes were what first made people think of music in digital terms. An audio CD might as well be analog as far as people's perception goes, since until MP3 players came around, ripping CDs was not the typical use case.
I ask because everyone rallied behind RadiumOne's CEO being canned after he beat up his girlfriend [0]. Similar with the Mozilla CEO (granted, the offense was different ... but it's interesting to point out that his transgression happened 6 years ago).
But now Dr Dre is about to become an executive at the largest tech company in the world and people seem to be lauding the move despite the fact of (A) misogyny in his lyrics since his NWA days and [1] (B) him beating the crap out of a female reporter, doing probation and settling a civil suit out of court [2].
Am I comparing apples and oranges here? (pun intended!)
[0] http://techcrunch.com/2014/04/27/ceo-gurbaksh-chahal-fired-f...
EDIT: spellling
[1] http://rapgenius.com/Dr-dre-bitches-aint-shit-lyrics
[2] http://en.wikipedia.org/wiki/Dee_Barnes#Dr._Dre_incident