To hear Beats co-founder Jimmy Iovine tell it, you’d think Apple’s pending $3.2 billion acquisition of Beats Electronics--a deal that’s shocked the worlds of tech, music, and Wall Street--was always meant to be. Don’t believe him? Well, just listen to Steve Jobs.
“Steve called me one night before he passed. Must have been eight months before he passed,” Iovine told me during an interview at his home in Los Angeles this past March 17. On that call, Iovine continued, Jobs told him ‘‘’you know, you’re one of the few people--if not the only person--who came out of software and made a piece of hardware successfully.’”
Software, in this case, means Iovine’s legendary history in music as producer and founder of Interscope Records; hardware is Beats’ iconic and wildly popular headphones. Iovine shared that conversation with me as I worked on a feature for Inc.’s Most Audacious Companies package which detailed how Iovine, rap icon Dr. Dre, and Beats President Luke Wood built Beats into a $1 billion business. Less than two months after I saw Iovine, according to multiple reports, Apple could announce that $3.2 billion purchase of Beats Electronics as early as next week. No wonder Iovine had Apple on the brain.
The deal will also give the Cupertino-based consumer electronics giant the newly-launched subscription-based streaming music service, Beats Music. In March, Iovine said he’d been pushing Apple to get into that business for a long time.
“I’ve been meeting with Apple about subscriptions since 2004,” when Iovine was CEO of Interscope Records. “Every two months. I think they’re an incredible company, and I wanted them to do subscriptions.”
“I think they have the platform to do it. They have 400 million credit cards, an audience that likes music. And they have, y’know, iTunes!”
As natural as the deal may seem to Iovine, today’s news has many scratching their heads. Why would Apple make Beats its largest deal ever? "You buy companies today to get technologies that no one else . . . or customers that no one has," Forrester analyst James McQuivey told Reuters. Beats and Apple have similar customer bases, and its headphones, while extremely popular, have much in common with other high-end personal audio products. And Beats’ music-streaming service, while boasting a nifty “sentences” feature that relies on the guidance of artists and DJs to generate playlists based on users’ moods and locations, nonetheless faces tough competition from the likes of Spotify and Pandora.
As recently as last June, investors were skeptical that Beats could continue its awesome growth trajectory, when the company failed to raise $700 million in debt. But it managed to refinance its existing debts and by August, private equity firm Carlyle Group bought a minority stake in Beats for $500 million, a deal that valued the company at over $1 billion.
In addition to Iovine’s conversations with key Apple executives, he also worked with Apple to put Interscope artist U2 in some of the earliest iPod ads. Iovine’s pitch to U2, he recounted, was “‘you guys don’t do sponsorship, but this’”--the iPod--“’is a musical instrument.’”
In our conversation, Iovine described Apple and Beats as kindred spirits. “Apple was selling $400 iPods with $1 earbuds,” Iovine said. “They're making a beautiful white object with all the music in the world in it . . . I'm going to make a beautiful black object that will play it back.”
He did that so well Beats may take $3.2 billion to the bank. A spokesperson at Beats declined to comment, and a spokesperson from Apple did not return a call.