Why Did Apple Buy Beats? Because “Music is Dying”

Apple executives made their first public appearance after announcing the company’s $3 billion acquisition of Beats Electronics, the audio accessories maker, and Beats Music, a streaming-music service, Wednesday evening at the Code Conference in Los Angeles.Eddy Cue, who spearheaded Apple’s iTunes Store, and Beats cofounder Jimmy Iovine, said they struck the deal out of concern for the health of the music industry.

Iovine spoke about growing up in Brooklyn and wanting to escape his rough neighborhood. He compared the music business to a similarly rough neighborhood.

“We wanted to move to a better neighborhood” by selling the company to Apple, Iovine said.

“Music is dying,” said Cue. “It hasn’t been growing. You see it in the number of artists. This past year in iTunes, it’s the smallest number of new releases we’ve had in years.”

Peter Kafka: This is such an unusual deal for Apple. Why did you make it?

Tim Cook: This is all about music, and we’ve always viewed that music was key to society and culture. Music’s always been at the heart of Apple. It’s deep in our DNA. We’ve sold Macs to musicians since the beginning of Macs. And we accelerated the music industry with the digital music revolution with the iPod and the iTunes music store.

So we’ve always loved music and believed in the power of it and believed that it could transcend language, culture and bring people together and produce emotions and deep feelings that other things can’t. And we’ve stood at the intersection of technology and the liberal arts. So I see this right in the — if you were drawing a line, this would be the logical next data point.

What Beats brings to Apple are guys with very rare skills. People like this aren’t born every day. They’re very rare. They really get music deeply. So we get an infusion in Apple of some great talent.

We get a subscription music service that we believe is the first subscription service that really got it right. They had the insight early on to know how important human curation is. That technology by itself wasn’t enough — that it was the marriage of the two that would really be great and produce a feeling in people that we want to produce. They’ve also built an incredible premium headphone business that’s been tuned by experts and critical ears. We’re fans of that. It’s a reasonable-size business that’s fast-growing.

But mostly, backing up — it’s because we always are future-focused. So it’s not what Apple and Beats are doing today. It’s what we believe pairing the two together can produce for the future.

Financially, it’s great, because even in the short term there are synergies. Using Apple’s global footprint, there’s hitting the gas on the subscription service, there’s distributing the headphones globally in countries that they’re not in today. There’s lots of things like that.

So we’re projecting it’s going to be accretive in fiscal year 2015, which as you know for us, only starts in a few months.

But the real thing that gets us excited is that feeling that you only get so few times, are the things that we can jointly do together, that neither company could do on their own.