Why Does Apple Want to Buy Beats?

It's a good question, really.... Why does Apple ( AAPL) want to buy Beats?

Apple changed the entire music world with iTunes and iPods. Is Apple on the brink of changing the entire music world again with its potential acquisition of Beats?

Far be it from me to challenge Apple's decision to want to buy Beats. It's an interesting choice for many reasons. For me, the challenge is to take it all in and then decide what the impact will be on Apple's stock price and the shares of its competitors.

To accomplish that task, I've taken a look at iTunes' download music competitors, as well as iTunes Radio streaming music competitors, Beats Music being one of them.

It's hard to remember a time when iTunes didn't exist. In fact, I can't remember when iTunes didn't exist because it was started when I was four years old (January 2001). It's hard to believe that people listened to things called 8-Track tapes and cassettes and albums, and crazy to understand that music listening sitdowns lasted longer than three minutes. People used to listen to music, so I'm told, for hours at a time, or at least the length of time of an album, about an hour.

Currently, sales of downloaded music is declining. Apple's competitors in the music download market are Amazon mp3 ( AMZN), Google Music ( GOOG), and eMusic, a private company. There are a few others, but the bigger focus is now on music streaming companies --- and that is what may be at the heart of the Apple purchase of Beats.

SOURCE: 13 Streaming Music Services Compared by Price, Quality, Catalog Size and More,
by Matt Peckham @mattpeckham March 19, 2014


After researching a lot about Beats and the pros and cons of Apple buying Beats, I came to one great advantage and one great disadvantage for Apple. Let's start with the bad news....

The great disadvantage for Apple in buying Beats is quality, at least according to Mark Owsinski in a May 10, 2014 Forbes piece, Why The Apple-Beats Deal Makes Sense, And Why It Doesn't. Owsinski states, "Unfortunately Beats headphones are more of a fashion statement and are nowhere near the overall quality one would normally associate with Apple, so you have to wonder how the electronics portion of Beats even fits into the equation of the deal.

The great advantage for Apple in buying Beats is the cool factor. According to Frank Aquila, M&A Partner at Sullivan & Cromwell, in a May 9, 2014 Fox Business news article, "Right now iTunes is not the cool music service.... Acquiring Beats gives them the 'Dr. Dre cool' factor."

All that said, I turn my attention to what may happen to the stock price of these companies - Apple, Amazon, Pandora (P) -- if Apple (AAPL) goes through with the deal and adds on some extra cool to the Apple brand?

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