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Apple Watch: Apple Acquires Beats for $3 Billion
Wednesday, 2014 May 28 - 5:36 pm
Apple today announced that they will acquire Beats Electronics and Beats Music for a total of $3 billion, confirming rumors that have been flying around for the past few weeks. Apple will spend $2.6 billion up front and another $400 million over time. This is slightly less than the original rumored amount of $3.2 billion.

There's been a lot of speculation about the reasons behind the acquisition, and why Apple was willing to spend so much money. Here's a roundup of some of the possible reasons.

Jump-start streaming audio. On the surface this is the most plausible explanation. iTunes Radio has, to date, not terribly successful in bringing in paying customers; and it doesn't have the Spotify-like "any song any time" aspect to it. While Beats Music only has only around 111,000 subscribers, you combine that with their marketing savvy and streaming audio deals, and then catalyze that with Apple's captive hardware audience? Maybe there's something to that.

Beats headphones. Celebrities and athletes all over are spotted with the distinctive headphones. They're not known for being best-of-class when it comes to audio, and Apple could certainly make headphones themselves, but again, perhaps Apple sees this as an opportunity to improve the technology while cashing in on the Beats brand. You can't manufacture "cool" the way Beats has. The question here is, will Beats still be as cool when it's under the Apple corporate umbrella?

"Acqui-hire". Jimmy Iovine and Dr. Dre are influential and respected figures in the music industry, and one benefit Apple gets is that the two are now Apple employees. This really only makes sense if one or both of them are to play a pivotal role in some upcoming endeavor. The speculation is that Iovine may be tapped to spearhead negotations with television producers and networks for Apple TV. This is plausible, but it's hard to see how that's worth $3 billion.

Tax dodge. This one hasn't been mentioned much outside of financial circles, but it could be the biggest reason for the high price tag. Beats Electronics Holding Limited is based in Ireland, and Apple has a ton of cash (in the neighborhood of $54 billion) parked offshore doing nothing but avoiding U.S taxes. You take $3 billion in foreign cash earning nothing but a trickle of interest, and convert it into a business unit that brings in potentially millions per year? Sounds like it could be a decent return on investment.

Apple stock is fairly steady at $624 on the news; investors had largely priced the rumor into the stock already.
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Posted by Ken in: techwatch

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