It’s Finally Official: Apple Buys Beats For $3 Billion

Posted on May 29, 2014
Dr. Dre & Jimmy Iovine

I didn't want to play cat and mouse with all the rumors that were circulating over the past month about the Beats acquisition by Apple for $3.2 billion. Now the rumor mills have halted and we have the official details, Apple has officially closed on the Beats acquisition for $3 billion. The $3 billion is broken down into $2.6 billion in cash and $400 million in equity for Beats Music.

The deal will bring a music-streaming service, high-end headphones and music-industry connections of both Dr. Dre and Jimmy Iovine to the technology giant.

Apple Beats

Reports Global 14:

Apple said it would pay $2.6 billion in cash and $400 million in equity for Beats Music, a subscription music-streaming business, and Beats Electronics, which makes pricey headphones, speakers and audio software.

Beats co-founders—rap star Dr. Dre and music mogul Jimmy Iovine —will join Apple, and Apple will continue to use the Beats brand, a first for the company.

Mr. Iovine said he would leave his post as chairman of Vivendi Interscope Records and will work full-time at Apple. Dr. Dre, whose real name is Andre Young, said he would continue to produce music but do “as much as it takes” for Apple.

Mr. Iovine, a longtime friend of Apple co-founder Steve Jobs, said the two men’s titles would simply be “Jimmy and Dre.” They will work with both Apple’s electronics and music-streaming divisions, spending as much time at Apple’s Cupertino, Calif., campus as necessary, while serving more broadly to bridge the cultural divide between technology and entertainment industries.

“The ugly truth is that there is such a Berlin Wall between Silicon Valley and L.A.,” Mr. Cook said in an interview. “The two don’t respect each other, don’t understand each other.

“We think these guys have a very rare talent,” Mr. Cook continued. “We love the subscription service that they built—we think it’s the first one that really got it right.”

Apple became one of the world’s largest technology companies by creating huge, new consumer electronics categories with the iPhone and iPad. But the company hasn’t introduced a breakthrough product since Mr. Jobs died in 2011.

At the same time, it has lost some of its hold on the music business. Apple’s iTunes store is the dominant seller of downloaded music. But listeners increasingly are turning to streaming services such as Spotify and Pandora Media Inc.

U.S. sales of single downloads slid 6% to 1.3 billion tracks last year, while album downloads were flat at 118 million. Pandora’s free, ad-supported service has more than 70 million active users. Spotify, which entered the U.S. in 2011, now counts 10 million paying subscribers world-wide.

Apple launched its own free music-streaming service, iTunes Radio, in September 2013. It counts 40 million U.S. users but has yet to make much of a competitive dent. Beats started its $9.99-per-month subscription music-streaming service in January.

The Beats deal also marks the start of Mr. Cook’s push to place his own stamp on Apple, which is still using much of the playbook established by Mr. Jobs. However, Beats pushes Apple in an unfamiliar direction. Not only will it take two celebrities into the company—it will acquire a new stand-alone brand, in a culture where the only brand until now has been Apple.

So is Dr. Dre a Billionaire?

Speculation would suggest not yet, from what I understand according to Forbes, Dre has a 25% of a 25% stake in Beats which would net him a couple hundred million but nothing will be clear until the details are revealed.

Here's a bit more of the break down.

You guys first have to first understand what Dre's stake is, remember he sold most of his stake in the company to HTC back in 2011 for $500 million, then after the HTC deal turned out not to be fruitful, HTC sold part of the company back to Beats for $150 million

That's why Dre has the money he has now was because of that HTC deal. Dre's original stake in the company was about 25%, that went away when after selling to HTC. 

The $150 million buy back gives Dr. Dre roughly 25% of a 25% stake in Beats. So the math would be 25% of 25% of $3 billion. This would net Dre roughly $200 million. 

Now of course they're other parts of the deal that will also earn him more such as signing on with Apple and bringing his expertise to their company. No way to calculate what that's worth, along with other agreements until the details are revealed. 

So the answer is no, Dre will not be a billionaire…..just yet.

This isn't just the biggest deal in Hip Hop history, it's one of the biggest in music.

About: Glenton Samuels aka Chozen. Web designer, artist, entrepreneur. I started a little Hip Hop website back in 2006 that more about: Chozen
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