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TheStreet Open House

The Real Reason Behind an Apple Beats Deal

Stocks in this article: AAPLSSNLF

NEW YORK (TheStreet) -- Unless you've been living under a rock for the past week or so, the big story has been Apple's (APPL) rumored acquisition of Beats Electronics.

If the numbers bandied about are true, the $3.2 billion to buy rap mogul Dr. Dre's headphone and music-streaming service would be the iPhone maker's largest-ever purchase by the iPhone maker. The deal would include the streaming Beats Music subscription service and the headphone and speaker division. 

Over the years, Beats has become a tremendously influential and popular brand thanks to Dr. Dre and co-founder, music producer Jimmy Iovine to strategically market the company's signature headphones, Beats by Dre.

We've all seen the speculation about why this acquisition is happening and what Apple has to gain from it.

  • Apple is doing it to get control of the headphone space and the coolness of the brand.
  • Beats's fledgling music subscription service.
  • It's a great deal because Beats hardware is very profitable and has, in some cases, much higher profit margins than Apple products.

I think those are all good reasons and are possibly part of the calculation. But I believe the strategic calculation is a lot simpler and can be summed up in the sentence Apple doesn't want to see: "Beats Electronics, a Samsung company."

If the co-founders are selling, I believe Apple will not let Beats fall into Samsung's (SSNLF) hands. It's only logical to assume that if Apple decides to pass on this acquisition a Samsung acquisition would be an option.

Besides being a major phone competitor, Samsung has a long history of strategic relationships with celebrities including Ellen DeGeneres and LeBron James as well as innovative deals with musicians. For instance, Samsung sponsored Jay Z's last album. Samsung would love to portray Apple as a less-relevant and "uncool" company.

If Samsung were to buy Beats, Apple would have to launch a full scale hardware battle against the Beats brand with its own product. This would have included substantial manufacturing, marketing and R&D costs at a time where the company needs to be focused on more strategic decisions.

So will Apple buy Beats, or will it get beat by Samsung?

At the time of publication the author had no position in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

>>Read more: Now We Learn Why Facebook Acquired Oculus

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