Why is Apple paying $3bn for Beats Electronics?

Beats headphones

Some analysts are 'baffled' by Apple's purchase, but others say it may be their shrewdest move yet

LAST UPDATED AT 12:27 ON Thu 29 May 2014

After weeks of speculation, Apple has confirmed that it will buy headphone maker Beats Electronics and its associated music-streaming service, leaving many analysts "baffled" by the move.

The company, founded by music producer Jimmy Iovine and hip-hop star Dr Dre, will be bought for a total of $3bn (£1.8bn) – well over the £2bn price tag many had estimated. 

Aside from concerns about the price, analysts have questioned whether Beats hardware will meet Apple's high standards. Leo Kelion, the BBC's online technology editor, notes that the sound quality of Beats' headphones has been criticised, despite the skill of Iovine and Dre in "building up the brand".

Not everyone in the industry was down on the deal. Apple had been starting to lose its edge, Sony executive Doug Morris told the Wall Street Journal, but this deal will make it "cool" again. He praised an acquisition that will bring together Iovine's understanding of "the culture of young people" and Apple's "many millions of young peoples' credit cards".

Iovine, a long-time friend of Steve Jobs, will also be able to help Apple build partnerships with the music industry, the WSJ says. 

Tim Cook, Apple's CEO, underlined the importance of the music content. "We get a subscription music service that we believe is the first subscription service that really got it right," he told Re/code. "They had the insight early on to know how important human curation is."

Tim Danton, editorial director and publisher of PC Pro, says that Apple's deal may turn out to be very shrewd, and should cause the company's rivals real concern. "This is scary news for every other player in the music-streaming market. When Apple fully absorbs the Beats subscription service into iTunes, it will be able to offer its music-loving customers everything they need on pretty much every platform you can think of. Plus some more that we haven’t even considered yet".

So it is worth the money? Danton believes so: "When you consider that Apple almost always gets this kind of implementation right – by concentrating so much on what people want and making it simple – that $3 billion looks like money well spent".

  · 

For further concise, balanced comment and analysis on the week's news, try The Week magazine. Subscribe today and get 6 issues completely free.

Read more about