What Would Make Apple Pay $3.2 Billion For Beats Audio, Facebook Perhaps?

May 8 2014, 6:40pm CDT | by

Word, now confirmed by the Financial TimesBloombergThe Wall Street Journal, and The New York Times, that Apple is in talks with Beats Audio about an acquisition to the tune of $3.2 billion is surprising only because of the price.null null . And iTunes Radio is far from a Spotify or Pandora killer, so the new Beats Music streaming service could bolster it and declining iTunes sales.

But for a company that was valued at $1 billion at the time of the Carlyle Groups investment of $500 million last September,null . Apple has never spent a billion buying another company, something that rivals Google and particularly Facebook can’t say. Facebook, in particular, stacks up as a likely suitor. It has been on a spending spree of late, swiping up WhatsApp for $17 billion and Oculus VR for $2 billion. And it could be said that it got into the big-spending picture back in 2012 when it acquired Instagram for $1 billion (which now seems almost reasonable.)

And, like Apple, Facebook has a cool problem. Instagram and WhatsApp were both attractive because of their teen appeal. Beats would bring not only youth but some amount of urban street cred as well. And Facebook has never had the really tight linkage with music that Twitter and especially Myspace have enjoyed.

But Beats is really much better aligned with Apple than any other tech company I can think of. Both have succeeded at launching product line after product line that are a cut above its major competitors in both quality and price. Iovine claims having had a tight rapport with Steve Jobs and even pitching him on a streaming service a decade ago. That man is money!

And the new Beats Music service has been well-received for its innovative approach to curation, thanks in large part to creative director Trent Renzor. The Nine Inch Nails frontman turned go to soundtrack composer (The Social Network is particularly apropos here) could well become an important part of Apple’s brain trust along with Dre and Iovine. Despite Apple’s investment in music sales stemming form Jobs, the subscription and streaming models are growing and direct music sales are declining. Tim Cook must be loyal to both the past and the future.

In a way, Apple may need Beats more than it needs the Burberry marketing brass or the host of medical technologist it has recently hired. For an iWatch to be a hit, it will have to be cool, and headphone tech has certainly been a test ground for wearables. Maybe Apple can get Run DMC to do its next ad campaign?

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