Apple is acquiring Beats by Dre for multiple major reasons, but none of them have much to do with iTunes Radio or Spotify or Pandora. Many in the tech world have latched onto the fact that Beats happens to have a niche streaming music subscription service, and assumed that it’s the reason behind the deal. But those are the same folks who have spent the past decade insisting that music rentals are the future, even as Apple has proven the exact opposite with its wildly profitable iTunes Store. That’s in direct contrast to the fact the Pandora and Spotify lose money no matter how trendy they get, because most people looking to stream music aren’t looking to pay anything for it. No, the Apple-Beats is about something else entirely.
Apple’s next generation mobile devices need to retain their cool factor while also representing a significant technical advancement over existing versions and the competition. By building Beats by Dre audio technology into devices such as the next iPhone, Apple accomplishes both those goals with one broad stroke. The additional recurring revenue it gains by taking over the Beats line of headphones and stereo systems is just icing on the cake. And that’s before getting into Apple’s big upcoming push into wearable computing devices and how Beats technology and branding will play into it.
Apple is willing to bet big on Beats, so big in fact that various leaks are placing the deal at north of three billion dollars – and that’s where the absurdity of the music subscription obsession becomes apparent. Apple launched iTunes Radio last fall in a low-key manner, making clear that it was merely a way of keeping its hand in the game, mostly to silence the techies who spent every day writing headlines asking why Apple didn’t offer a streaming service. Since that time Apple has done little else with the service, because it knows that – like all music subscription vehicles – it’s a money losing gambit that serves no real purpose other than to perhaps steer a handful of $1.29 purchases back to the iTunes Store.
There is simply no way that Apple is spending billions of dollars just to acquire a music subscription service that isn’t even among the most popular subscription services, just so it can lose money on iTunes Radio in an even bigger way going forward. Instead, the Beats deal is aimed at boosting Apple’s existing profitable product lines and giving an assist to its upcoming potentially profitable product lines.