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Your Ears Belong to Dr. Dre: That'll Be $300 (Update 1)

Stocks in this article: HPQAAPLMSFT

Updated from Jan. 11, 2013, 10 a.m. to include management of Beats' new music service.

NEW YORK ( TheStreet) -- Hip-hop star, producer and music mogul Dr. Dre is a perfectionist. He also appears to be something of a control freak. He is using those qualities to build himself a tidy little empire.

Dr. Dre, the stage name for Andre Young, helped define the West Coast genre of hip-hop known as G-funk, first through his group N.W.A., then as a solo artist, a producer of acts like Snoop Dogg, 50 Cent and Eminem, and through his work building Death Row Records and his own current organization, Aftermath Entertainment.

In December, Forbes Magazine listed Dr. Dre as the most highly paid entertainer of 2012, with $110 million in income, beating out U2 and Lady Gaga. Most of that comes not from his music but from his electronics company, Beats Electronics, the maker of the Beats by Dre line of headphones, speakers and now cellphone, computer and automobile audio technology. The company has also unveiled plans to launch a streaming music service.

As a recording artist and producer, Dr. Dre has long had a reputation for wanting everything just so. Hundreds of takes to get one instrument just right. Rumors swirl of recordings made but never released -- maybe never to be released -- because he's not completely satisfied.

He wants to control every aspect of the sound. With Beats, he can even control how it sounds after it leaves the studio, how it sounds in your ears.

But those control issues are married with great business instincts. Where another artist would sell T-shirts and crap or slap his stage name on a brand of perfume, Dre has taken merchandizing to a whole new level, creating a substantial business.

With Beats by Dre, the artist brand and the company brand work together as equal partners. It was a brilliant move and, in the process, he actually changed the face of the audio products market and set a new benchmark for other entrepreneurs.

Dr. Dre founded Beats in 2006 with Jimmy Iovine, chairman and CEO of Interscope/Geffen/A&M, ostensibly to create a listener experience comparable to the recording studio. Small, high-quality home audio systems already existed -- Bose had pioneered the space -- but widely used products that appealed to the young popular music crowd were simply absent.

Think about it: Where have you seen Bose outside of magazine ads? A coffee table or bookshelf in a well-to-do living room or bedroom. The company's products are sleek and the sound quality is remarkable but the appeal is quiet, staid and low-key.

Apart from Bose, other makers of headphones just didn't seem interested in marketing an improved audio experience, particularly not for the average pop music listener.

Beats saw the opening and took it, putting out a cool-looking line of high-quality audio headphones designed to rock the house anywhere, anytime. Colorful and packaged with trademark audio technology, they were branded with Dre's producer cred and marketed with a $200-to-$300 price point.

Beats by Dre

The result? Beats are everywhere. From a product launch in 2008, they've become a brand icon for every teenager. Walking around the streets of my hometown of Asbury Park, a large share of young people are suddenly wearing headphones -- not buds -- and those headphones, nine times out of 10, are Beats.

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