X-SciTech

Apple may acquire Beats Music, headphones, report says

May 9, 2014 / 11:06 AM EDT / CBS News/AP

Apple may be planning a $3.2 billion acquisition of Beats Electronics, the headphone maker and music streaming service founded by hip-hop star Dr. Dre and record producer Jimmy Iovine, according to a new report.

In its report posted online Thursday, The Financial Times said the talks were still ongoing, but could collapse if the two sides cannot agree on some final details. Citing people familiar with the negotiations, the newspaper said that Apple could announce the deal as early as next week.

Unlike other companies such as Facebook, which made big acquisitions of WhatsApp in February and Oculus VR in March, Apple has traditionally seen little need to buy technology from other companies, priding itself on turning its own ideas into revolutionary products, such as the Macintosh, iPod, iPhone and iPad. The $3.2 billion deal, if completed, would be the largest purchase in the company's 38-year history.

The potential acquisition would add Beats Electronics' popular line of headphones and music streaming service to an Apple lineup that already includes iTunes, the world's top music retailer.

Apple hasn't released a breakthrough product since its visionary former CEO, Steve Jobs, died in October 2011, putting pressure on Jobs' hand-picked successor, Tim Cook, to prove he is capable of sustaining the success and growth of world's most valuable company and beloved brand.

Some took to Twitter to criticize the planned acquisition, questioning Apple's strategy, with others saying it may be worth the money.

You would expect #Apple to be able to innovate on both music and headphones themselves. Instead of acquiring a hollow brand like #Beats.
— Thor Martin (@thooor) May 9, 2014

It's like $AAPL is trying to *prove* there is a bubble in tech merger valuations #beats
— Kid Dynamite (@KidDynamiteBlog) May 8, 2014

LOL #beats #apple pic.twitter.com/1pTx2GUQfl
— Tim Dickinson (@7im) May 8, 2014

Putting the #Beats #Apple merger into some perspective- the premium headphone mkt surpassed $1Bn last year; Beats owns more than half of it
— Ben Arnold (@TechBarnold) May 9, 2014

Apple's pursuit of Beats Electronics is the latest indication that the company is having trouble generating growth on its own. Apple already sells Beats Electronics gear in its stores, giving the company insights into how much the trendy headphones and other audio equipment appeal to its customers. The Beats headphones have become a status symbol -- worn by celebrities as well as audiophiles -- although some in the tech world are not impressed by what one reporter called a "TERRIBLE accessory."

The negotiations take place at a critical time: the music market has seen a massive shift towards streaming and away from downloads. U.S. revenue from downloads -- which iTunes dominates -- dropped 1 percent to $2.8 billion in 2013, while streaming music revenue from the likes of Pandora and Spotify soared 39 percent to $1.4 billion, according to the Recording Industry Association of America.

Downloads still command 40 percent of the music industry, but streaming now accounts for 20 percent of total revenue, up from just 3 percent in 2007.

Beats relaunched streaming music service MOG -- after acquiring it in 2012 -- as Beats Music earlier this year, announcing with a partnership with AT&T that allowed up to five family members to pay $15 a month for the service as long as they were AT&T wireless customers.

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