Apple Buys Beats

The streaming music service, not the headphones.

The headphones are going bonkers, despite every audiophile in the world castigating them for their bass-heavy frequency response, turns out music is a fashion item and everybody wants to be fashionable. Easier to spend a few hundred dollars on ear cans as opposed to a Rolls-Royce or a NetJet account. Everybody wants to appear rich and a player, even though the truth is the purveyors, the proprietors, the men who pull the strings behind the curtains (and it’s seemingly always men, did you read that Marissa Mayer is gonna start a streaming video service on Yahoo…why not a search engine and a smartphone while she’s at it!) are the ones making all the money, pulling away from the hoi polloi.

Yes, I’m talking about Tim Cook. You know, the guy who said he was bringing manufacturing back to the U.S. when the truth is it’s for the niche Mac Pro while everything else is still being made in China and Apple hoards more cash than it knows what to do with.

But the truth is Mr. Cook has been running on Steve Jobs’s fumes, the same way Al Teller ran on Irving Azoff’s legacy at MCA. Cook has yet to come up with anything new. Meanwhile, Huawei eats smartphone sales on the low end and Samsung is nibbling at every inch of consumer electronics shelf space and iTunes music sales are off.

Yes, it turns out Steve Jobs was wrong. Don’t criticize him, you can’t be right unless you’re willing to be wrong, everybody makes mistakes, and Steve was famous for changing course, delivering what he said he would not before, and the truth is people don’t want to own their music, they want to stream it, and Apple’s got no streaming solution.

Oh, the company has iTunes Radio. But it’s an also-ran in a mature sphere where Pandora dominates. But the truth is YouTube dominates in music, and before Spotify makes any more inroads, Cook has decided to make a deal with the devil, i.e. Jimmy Iovine.

Yes, Jimmy pulls one out of the hat once again.

You really didn’t think Beats Music could survive without a free option, did you? Didn’t Napster prove that you can’t compete with free? Isn’t that the history of the Internet, if people can get it for free, your business model is challenged?

So Beats Music is hemorrhaging money and Apple has a need and an acquisition was made.

However, there is absolutely no truth to the rumor that Iovine is ankling his Universal post to start an Apple record label, abandoning Interscope now that John Janick is doing the day to day work. Apple is smarter than to get into music production. Apple is about locking people into their ecosystem, and producing content has nothing to do with that. Distribution is king. Apple doesn’t care whose music you play on their devices, as long as you employ their devices.

That’s what Steve Jobs had right, a foolproof solution, an end to end answer to questions you didn’t know you had, but will uncover in time.

That’s still Apple’s iPhone ace in the hole. Sure, a Samsung Galaxy might make phone calls and display apps, but how easy is it to synch your music and your photos?

But the truth is music synching is passe. Which is why Tim Cook is making this Beats deal.

As for the price?

A cool billion.

Yes, Jimmy bought low and sold high. It’s not WhatsApp kind of money, then again, Facebook wasn’t interested, despite Jimmy flying to see Mark Zuckerberg once a month for the past year. And when Zuckie made the Oculus deal Jimmy knew it was time to pull the trigger, to take the Cook offer, even though he wanted more. Yes, Jimmy was angling for $2 billion, but in this case he had little leverage, he took the cash.

As for his minions?

In one fell swoop, Trent Reznor has made more money than he ever did in music.

As for Dr. Dre, who hasn’t had a hit single in eons and probably never will again, he’s rolling in dough. Jay Z keeps telling us he’s the man, but it turns out Dre is. Proving the man behind the console is always more powerful than the one in front of it. Acts come and go, producers, or at least their royalties, are forever.

And speaking of royalties…

Just like with iTunes Radio, Apple will immediately increase payments, to shame Spotify. Apple wants acts on board, especially since they utilize their devices and software, Macs and Logic. And we all know the money is in the tools one uses to create, as opposed to what comes out of the speakers.

Now despite this announcement, don’t expect Apple to launch its streaming service for quite a while, look to history, the acquisition of Lala, Bill Nguyen’s enterprise that launched as a CD trading site. But just like Mr. Nguyen was jettisoned, Ian Rogers will not make the transition to Apple. Mr. Rogers says it’s because of a lack of Cupertino skateparks, but that’s just a smoke screen, Apple wants none of the Beats employees, it’s going to take the code and upgrade it, the licenses are key, and the technical infrastructure.

In other words, whereas the Lala buy was about getting engineers on board, in the case of Beats Music, Apple wants the end product and will keep the present Beats team on for only a short while, to help in the transition.

Cook wanted to launch the service in September, with the iPhone 6, but now with Scott Forstall gone, Apple software development is still in disarray, and this timetable is impossible, so the launch will come in the new year, right after Christmas, before the Super Bowl, when Cook is scheduled to appear on the Howard Stern show to introduce the product.

That’s right, Stern now has more impact than football, and as a lover of Apple products he’s willing to host Cook for free. Furthermore, with endless reruns on both Howard 100 and Howard 101, the message will continue to get out. And, the interview will stream free on iTunes Radio, so you won’t need a satellite subscription to hear it.

Cook was very close to making a deal with Rush Limbaugh instead, but Rush’s hatred of gays queered the deal. That’s right, despite being an Apple fanboy, Rush’s political positions did him in.

As for Cook’s request that his sex life be off limits on Stern’s show…Gary Dell’Abate told me that Howard will not negotiate, everything’s fair game.

So where does this leave us?

1. Streaming wins. People have been waiting for years for Apple to get into the market, now it has. Is it too late? Apple owned the portable music sphere with its iPod, no one else could get traction, but Android has significant market share in phones. Therefore, despite Cook portraying this as a breakthrough acquisition, it’s really about catching up.

2. Jimmy Iovine demonstrates that he’s a winner, that all the naysayers are wrong. He went on “American Idol” with those godforsaken Beats headphones around his neck and he willed them to be successful. Now that he’s unloaded Beats Music, rumor has it that Iovine will be shepherding a return to rock movement, saying it’s all about being able to play your instrument and that hip-hop is dead. He will reunite Stevie Nicks and Tom Petty for another duet, maybe around the time of the Apple/Beats launch, Jimmy has always known it’s about marketing.

3. Spotify is history. Daniel Ek is no competition for Apple. In tech timing is everything. Spotify fought the war, got customers softened up to embrace streaming, Apple will gain the lion’s share of the revenue (and yes, there will be an Android version of the Apple/Beats streaming service, it will launch simultaneous with the Apple version, just like iPod for Windows broke Apple through, Cook is taking no chances, he’s replicating the formula.)

4. Tim Cook shows that he is willing to go against Steve Jobs’s wishes, that Apple is now truly his company.

5. Once again, the money flows to the techies. Yes, Iovine got paid, but only once, he’s got no ongoing remuneration coming from Apple, like Ian Rogers, he’s out.

So the war is over. Our long national nightmare is history. We’ve evolved from CDs to piracy to the iTunes Store to legal streaming services. Now the person proffering the best music wins. Distribution is available to everyone, if not marketing dollars. Then again, just like Apple has been jawboning labels for exclusives, expect this behavior to continue on the Apple/Beats service, home page real estate continues to be valuable.

And one more thing…

YouTube’s streaming music heyday is about to end. As part of the Beats deal, the heads of the three major labels have secretly agreed not to renew their YouTube licenses. You can’t win unless you kill the competition, and Tim Cook has made a preemptive strike.

9 Responses to Apple Buys Beats


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  7. […] In what appears to be a fluke thing, Lefsetz made an April Fool’s joke that Apple was buying Beats.  […]

  8. […] di aprile per la precisione. Una newsletter del settore musicale (la più popolare di tutte:  The Lefsetz Letter) che faceva una lunga considerazione sull’acquisizione da parte di Apple di Beats aggiungendo […]

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