When rumors first surfaced about Apple buying Beats, a lot of tech watchers (myself included) were left scratching their heads. What could Apple possibly want from this company? This chart from Statista shows one clear incentive: iTunes Music purchases have declined in recent years, even as total revenue from Apple’s digital store has risen thanks to the growth of the App Store.
More people are streaming music from services like Spotify and Beats Music, and it’s no surprise that Apple wants a piece of that pie. It paid $3 billion for the company this week.
The iTunes Music Store is a leading provider of digital music, and it makes sense that Apple wants to remain in control of as much of the digital music market as possible. Buying Beats gives the company a pre-built solution to get into the streaming market, with brand recognition and a number of unique features that could help attract consumers away from other services.
The chart only tells part of the story, though: If Apple only wanted to buy Beats Music, the company could have negotiated for just that segment of Beats’ business, or purchased another streaming music service. It seems fairly clear that Apple wants Beats as a whole package. Beats co-founders Jimmy Iovine and Dr. Dre will prove quite useful to Apple’s future operations, and I’m sure that the company is looking forward to the profits from Beats’s high-margin headphone business.
The value of this deal is greater than one of Beats’ parts. Apple is getting a whole package of brand recognition, music expertise and talent on top of Beats’s streaming service, and I fully expect they will use all of that in the future.