Apple CEO Tim Cook looked like he wanted to dance Wednesday as he
discussed his company's $3 billion acquisition of Beats Electronics. The
deal, by far the most expensive in Apple's 38-year history, will give
the iPhone and iPod maker a line of trendy headphones known for their
hip appearance and thumping bass sound.
But Cook seems most excited
about the potential of Beat's still nascent music-streaming service,
which currently has more than 250,000 subscribers. That's paltry
compared to the more than 10 million people subscribing to Spotify's
rival streaming service, Cook is confident that will change once Beats
has access to the data that Apple Inc. has accumulated while selling
more than 35 billion songs to more than 800 million iTunes accounts
during the past 13 years.
1. Combining math with emotion
is intrigued with Beats Music's approach to compiling playlists to suit
the individual tastes of each subscriber. Rather than just grouping
songs by genre or relying on toneless algorithms that analyze past
listening habits, Beats also draws upon the knowledge and ears of
tastemakers such as Beats' co-founders - rap music pioneer Dr. Dre and
longtime recording industry executive Jimmy Iovine, who has been an
engineer or producer on seminal albums made by Bruce Springsteen, Tom
Petty and Dire Straits.
"We are getting the first music
subscription service that got it right, that believes in human
curation," Cook said during a Wednesday interview at Apple's Cupertino,
California headquarters. "We think this is killer. The feeling that you
get from listening to this service is so different than anything else."
2. Filling a void
is the top seller of songs downloaded over the Internet and has
attracted 40 million listeners to its free iTunes Radio service since
its launch eight months ago. But neither of those resonates with music
lovers like a classic album or a playlist tailored for a person's mood
at a particular time, according to Eddy Cue, the head of iTunes.
Beats, you can create a playlist that truly moves you," Cue said
Wednesday. "It gives you emotions, it gives you meanings, it tells about
culture. Those are things you can't get from a single song and we love
3. Money maker
Cook says Beats is already profitable,
six years after Iovine, 61, and Dre, 49, started the company, which is
now based in Culver City, California. Dre originally wanted to design
flashy sneakers, according to Sony Music CEO Doug Morris, who considers
Iovine to be his best friend. Iovine thought making a stylish line of
headphones would be more lucrative. The company launched its music
streaming service earlier this year.
After generating $1.1 billion
in revenue last year, Beats' sales increased by 30 percent during the
first three months this year, Cook said. He expects Beat to boost
Apple's earnings beginning in October. Apple earned $37 billion on
revenue of $171 billion in its last fiscal year, so Beats' initial
contribution won't be that significant financially.
4. A decade long courtship
has disparaged the technology industry as "culturally inept," but he
says he has always thought of Apple differently since he first met the
company's late co-founder, Steve Jobs, to discuss the state of digital
music in 2003.
"I came back to my team and said, These guys get
our industry and they get culture,'" Iovine said Wednesday. "This is a
company that was founded by a person who respects music."
Cook, who worked closely with Jobs before succeeding him as CEO in 2011, says the admiration was mutual.
Jobs "knew Jimmy very well and he loved Jimmy very much," Cook said.
5. Thinking differently
Many Apple watchers are convinced that Jobs would have never have bought Beats, no matter how fond he might have been of Iovine.
who died in October 2011, was famous for hoarding cash and when he
spent money, he preferred investing it in research that would enable
Apple to innovate on own. Until Wednesday, Apple's biggest previous
purchase had been its $400 million acquisition of NeXt Computer, a
company that Jobs started after he was ousted from Apple in the 1980s.
Jobs also had denigrated music subscription services, such as the one that Beats is trying to build.
says he tries not to ever consider what Jobs might have done if he were
still alive, but he insists that his predecessor wasn't as resistant to
acquisition as most people think.
"We have never been
anti-acquisition," Cook said. "We have looked at some very, very large
companies and we decided not to buy them. But we didn't decide not to do
them out of religious reasons. There was no rule,'Thou Shalt Not
Acquire.' There was no rule that everything had to be built
Apple has now bought 27 companies since September
2012. Most of them have been small deals that haven't required Apple to
disclose the price.