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Apple buys Beats Electronics for $3b

The Beats brand will stay separate from Apple’s; the company sells headphones and music by subscription.Getty Images/File 2014

CUPERTINO, Calif. — Apple, the company that turned digital music into a mainstream phenomenon, said Wednesday it is buying Beats Electronics, the rising music brand, for $3 billion, a move that will help it play catch-up with rivals that offer subscription-based music services.

On Wednesday, Apple and Beats executives said the companies would work together to give consumers worldwide more options to listen to music. The Beats brand will remain separate from Apple’s, but Apple will offer Beats’ streaming music service as well as its premium headphones.

Apple said that iTunes, which sells individual songs and albums and offers a streaming radio service, would continue to be offered alongside the Beats music service.


The purchase brings Jimmy Iovine, a longtime music executive, and Dr. Dre, the rapper, to work under Eddy Cue, Apple’s executive in charge of Internet services. Dr. Dre and Iovine, who founded Beats, join a list of prominent executives Apple has hired, including Angela Ahrendts, former chief of Burberry, and Paul Deneve, once head of Yves Saint Laurent.

Timothy D. Cook, Apple’s chief executive, emphasized the talent that Dr. Dre and Iovine bring to Apple. He also praised the Beats music service, which has people create playlists for others to listen to.

“These guys are really unique,” Cook said. “It’s like finding the precise grain of sand on the beach.’’

Apple is paying $2.6 billion in cash and $400 million in stock. It expects the deal to be approved later this year.

The acquisition of Beats, expected for weeks, follows a familiar pattern. Apple has, historically, bought technology outfits with resources and talent that it can blend into future devices and online services. Beats fits that criteria.

Yet the deal is also different. Until now, Apple, the richest technology company in the world, has avoided billion-dollar takeovers in favor of smaller deals. The Beats deal is its largest ever.


Apple declined to disclose plans for products it will make with Beats. In the meantime, the deal will raise questions about why Apple, the pioneer of digital music, is buying a music company instead of expanding its in-house products.

The growth of Apple’s iTunes Store is being stifled by companies such as Spotify and Pandora, which allow people to stream music freely with ads or with a paid subscription.

“Apple was at the front of that curve, and if that’s the reason for the acquisition it would lend credence to the view that maybe they’re not ahead of the curve anymore,” said Maynard Um, a Wells Fargo analyst.

Cook called the deal a “no-brainer.” He said Apple had bought 27 companies since last year, but that did not mean it had to buy those companies.

“Could Eddy’s team have built a subscription service? Of course,” he said. “We could’ve built those 27 other things ourselves, too. You don’t build everything yourself. It’s not one thing that excites us here. It’s the people. It’s the service.”

Still, some analysts, including Toni Sacconaghi at Sanford C. Bernstein, were puzzled by the acquisition, especially the price. In 1996, Apple paid far less, about $400 million, for the computer company NeXT, which brought the late Steve Jobs back to Apple. It was transformative: With Jobs at the helm, Apple rose from near-bankruptcy into a dominant company.