Since most of our clients are part of the iOS ecosystem, we’ve kept a close watch on Apple’s recent purchase of Beats for 3 billion dollars. There has been much speculation about the biggest acquisition in Apple’s history, which many see as a ridiculous price tag for a gaudy headphone company. But in this deal, Apple is also acquiring Beats Music, the celebrated music streaming service. Looking at the big picture, signs are pointing to Apple flipping the music industry over once again, with Dr. Dre as the force behind it all.
Rising Streaming Services Means Declining iTunes Sales
During a time of declining physical sales and piracy in 2003, iTunes became the saving grace of the music industry, as digital sales provided a new source of revenue. Fast forward a decade, and streaming services like Spotify and Rhapsody have become the new form of music consumption, gaining users quickly over the past few years. Consequently, iTunes sales have taken a major decline.
But while streaming services are enjoying a moment of success, with subscriptions expected to double by 2017, a Generator Research report states that streaming services are intrinsically unprofitable due to revenue payouts to labels, artists, etc. They would need to enter new product and service categories to monetize their users further.
And here’s where the Beats – iTunes wedding bells start to ring.
How Beats Can Revive iTunes -- and Cut Our Earphone Cords
Apple has 800M users. In practical terms, that means 800M stored credit cards. And while many of those accounts have become dormant with users opting towards streaming services, a new streaming service backed by the Beats Music streaming infrastructure could prove to be incredibly lucrative.
A revamped iTunes offering could really shake the music industry up – and that could go even further with a hardware play. Apple has yet to throw its hat into the wearable game – but having the Beats headphone resources could change that very quickly. A few days ago, reports of Apple possibly ditching the headphone jack in preference of its lightning bolt jack raised eyebrows. The lightning bolt connection, now standard on Apple products, can provide power to a robust headphone pack, unlike the typical headphone jack. Will an iPhone / iTunes + headphone package bring a new world in mobile music consumption?
The Dre Difference
Perhaps the least discussed item Apple gained is the man himself – Dr. Dre, the heart and soul of the Beats brand. In a post-Jobs era, where Apple finds itself desperately needing a refreshed cool factor, the company adds one of the most respected producers and marketers in the music and tech industry. Dre is the perfect person to drive the growth of an Apple/Beats streaming service, signing exclusive deals with all the great artists he has a close relationship with. As Tim Cook, Apple’s CEO explains in a press release, “we have kept investing in music and are bringing together these extraordinary teams so we can continue to create the most innovative music products and services in the world.” With Dr. Dre and Beats on their side, I’m sure they will.