By Alistair Barr and Hannah Karp
Apple Inc. said Wednesday that it is buying Beats Electronics
LLC for $3 billion to bring a music-streaming service, high-end
headphones and music-industry connections to the technology giant
as it seeks to reignite growth under Chief Executive Tim Cook.
Apple said it would pay $2.6 billion in cash and $400 million in
equity for Beats Music, a subscription music-streaming business,
and Beats Electronics, which makes pricey headphones, speakers and
audio software.
Beats co-founders--rap star Dr. Dre and music mogul Jimmy
Iovine--will join Apple, and Apple will continue to use the Beats
brand, a first for the company.
Mr. Iovine said he would leave his post as chairman of Vivendi
SA's Interscope Records and will work full-time at Apple. Dr. Dre,
whose real name is Andre Young, said he would continue to produce
music but do "as much as it takes" for Apple.
Mr. Iovine, a longtime friend of Apple co-founder Steve Jobs,
said the two men's titles would simply be "Jimmy and Dre." They
will work with both Apple's electronics and music-streaming
divisions, spending as much time at Apple's Cupertino, Calif.,
campus as necessary, while serving more broadly to bridge the
cultural divide between technology and entertainment
industries.
"The ugly truth is that there is such a Berlin Wall between
Silicon Valley and L.A.," said Apple Chief Executive Tim Cook in an
interview. "The two don't respect each other, don't understand each
other.
"We think these guys have a very rare talent," Mr. Cook
continued. "We love the subscription service that they built--we
think it's the first one that really got it right."
Apple became one of the world's largest technology companies by
creating huge, new consumer electronics categories with the iPhone
and iPad. But the company hasn't introduced a breakthrough product
since Mr. Jobs died in 2011.
At the same time, it has lost some of its hold on the music
business. Apple's iTunes store is the dominant seller of downloaded
music. But listeners increasingly are turning to streaming services
such as Spotify and Pandora Music Inc.
U.S. sales of single downloads slid 6% to 1.3 billion tracks
last year, while album downloads were flat at 118 million.
Pandora's free, ad-supported service has more than 70 million
active users. Spotify, which entered the U.S. in 2011, now counts
10 million paying subscribers world-wide.
Apple launched its own free music-streaming service, iTunes
Radio, in September 2013. It counts 40 million U.S. users but has
yet to make much of a competitive dent. Beats started its
$9.99-per-month subscription music-streaming service in
January.
The Beats deal also marks the start of Mr. Cook's push to place
his own stamp on Apple, which is still using much of the playbook
established by Mr. Jobs. However, Beats pushes Apple in an
unfamiliar direction. Not only will it take two celebrities into
the company--it will acquire a new stand-alone brand, in a culture
where the only brand until now has been Apple.
Daisuke Wakabayashi contributed to this article.
Write to Alistair Barr at alistair.barr@wsj.com and Hannah Karp
at hannah.karp@wsj.com
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