Apple's $3 Billion 'Beats' Deal Breakdown; $2.5 Billion for 'Beats Electronics' and $500 Million for 'Beats Music'

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By Pavithra Rathinavel | May 30, 2014 2:57 PM EST

The Cupertino-based tech giant Apple confirmed that it is buying 'Beats' for a whopping US$3 billion. For those unfamiliar with 'Beats', it is an American audio products and equipment producing company, founded by the famous rapper Andre 'Dr. Dre' Young.

REUTERS
A woman looks at the screen of her mobile phone in front of an Apple logo outside its store in downtown Shanghai September 10, 2013.

Both Apple fans and analysts were quite surprised at the Beats deal when the rumors started floating around. Apple's Eddy Cue stated the following as the reason for this acquisition; the company's talent pool, their hardware and the music subscription service.

Interestingly, Apple's biggest acquisition before Beats was 'NeXT' and that deal happened in 1997 for $404 million. However, the deal was made to get Steve Jobs back to Apple and the desktop operating system that the company was working on, points out Mashable.

It is worth noting that, Apple is purchasing a company that has a strong brand presence with two different product lines, the 'Beats Music' and the 'Beats Electronics' in tow.

According to The Wall Street Journal, Apple is paying approximately around US$500 million for 'Beats Music' streaming service and US$2.5 billion plus for 'Beats Electronics' in its US$3 billion agreement.

The publication further adds that the 2013 sales report for Beats stated that the company earned approximately US$1.3 billion. This includes the sales of head gears and other gadgets that is part of 'Beats Electronics' unit. Notably, the company launched its now famous 'Beats Music' streaming service only in the month of January.

The music streaming service under Beats Music costs US$10 per month in the form of paid subscription. Also, there are a total of 250,000 paid subscribers with Beats Music. The WSJ also noted that, with a good-enough number of subscribers, Beats Music should be worth US$100 million. The difference in the breakdown of the price could be because the two units were under different investors, says the publication.

Although, Apple revolutionized the music industry with its iPod and iTunes, Tim Cook, Apple CEO said that the company falls behind in booming into newer and promising business areas like music streaming. Thus, the acquisition of Beats could help Apple in the long run.

What do you think of the $3 billion deal? Feel free to leave a comment.

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(Photo: REUTERS / Aly Song)
A woman looks at the screen of her mobile phone in front of an Apple logo outside its store in downtown Shanghai September 10, 2013.
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