Could Apple acquire Beats?

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Rumors have come in stating that Apple is in talks to buy Beats Electronics, the maker of the popular headphones and music streaming service. Beats Electronics was created by popular music personality Dr. Dre and producer Jimmy Iovine.

?Apple will acquire Beats’ streaming music service, which launched this year, and its audio equipment business, which includes its brand of headphones and audio equipment. The Beats management team will report to Mr Cook, said people familiar with the deal. Apple and Beats declined to comment.?

The deal is said to have Apple paying $3.2 billion for the company. Apple isn?t a company to usually acquire other big name companies, though this could be its biggest acquisition yet. Apple spent $404 million to acquire NeXT in 1996 and that is the largest purchase to date. Based on the last earnings call, Apple should have around $150 billion cash on hand so it won?t make too much of a dent on their budget.

Tim Cook, CEO of Apple, mentioned earlier this year that the company would be open to making large acquisitions as long as the purchases made sense. He mentioned: ?We have no problem spending 10 figures for the right company, for the right fit that’s in the best interest of Apple in the long-term. None. Zero.?

The question now would be, is Beats the right fit for Apple? It seems like direct downloads, which made iTunes so popular, is starting to see a decline after years of steady success. This is in large part due to the success of subscription type music services like Spotify, Pandora, and even Beats Music service. Because of this decline in music sales, there are also rumors that Apple is working to completely overhaul iTunes which would possibly change to an on demand streaming service similar to Beats Music so this acquisition would make sense for them and save them resources compared to building the tool from the ground up.

Although a lot of things are still speculative, this deal could potentially be good for both companies as their interests seem to align with having a music subscription service. The younger demographic also seem to prefer the subscription model compared to direct downloads via iTunes.

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