May 132014
 

I admit that when I first saw the rumors swirling about Apple buying Beats Electronics, I was behind the news by about 8 hours. I took to my keyboard immediately and banged out some thoughts, and not all of them received the benefit of reflection. In what I’ve come to expect from the tech press, this speculation – sourced by 2 dudes at The Financial Times –  has taken on an air of completion that belies its absolutely unknown status. Since the deal has yet to be announced (although FT says it could both happen as soon as this week and that the talks could still derail – nice out, guys), I thought I’d expand on some of the points made in my post on Friday.

  • About the quality of Beats hardware – I called it shit, and I stand by it. It’s certainly not best-in-class and I’d argue it’s not in the top 20%, but then again Apple’s own kit is mediocre at best. Still, hardware is what Apple does and if Apple wanted to do better audio hardware, it certainly has the chops. Even though Beats kit sells at a decent clip, and one can assume its margins are on the high end, this “deal” certainly isn’t about their headphones.
  • About the quality of the Beats brand – I may have been a bit rash about calling it “shit”, and maybe I was associating the brand a little too synonymously with the merchandise they sell. Beats does have some cache as a brand and they have made a push to get their headphones on many entertainers – especially if they appear in front of a camera. I recently saw a UFC card where every fighter had a pair of their cans on. They’ve certainly gotten their name out there.
  • About Apple acquiring them for Beats Music – Still don’t see it – at all. Apple has the most talented designers and engineers on the planet. Apple has access to the largest collection of music on the planet. Apple has iTunes Match, which I am convinced is bashed by the same people who slag the iPhone 5C. Like I said, it isn’t Spotify, but Beats Music isn’t going to make Apple Spotify either.
  • About Apple wanting Beats Music subscribers – I think I made more of a deal out of this than the tech press did, so you know it’s a non-issue.
  • About the $3.2 billion price tag – The price is the ribbon of retardery that bundles a bunch of disperate, piss-poor reasons not to do something into a tidy package of reasons to definitely not do something. In addition to the fact that it’s likely more than what was spent on every other Apple acquisition in the company’s history combined, how do we even know what Beats Electronics is worth? The conventional method of valuation requires financial reporting data, the kind that isn’t required to be provided by an LLC, which Beats is. Sure we get some tasty sound bytes from the company like “Annual sales revenue is estimated at $1.5 billion,” but those statements mean jack shit. What were expenses? How much debt, if any, is being carried? In short, until Beats decides it wants to open its books like a grown-up company, knowing if $3.2 billion is a fair approximation of its value is impossible, which, like saying a deal is “almost closed but could still fall through” is just the kind of positioning that the rumor-mongors who sell Apple-based copy like to assume.

One thing that hasn’t changed for me is how I feel about the deal’s validity: I don’t think it’s going to happen. In a sea of tech reporters trying to disappear into their own assholes contorting a narrative that justifies the details leaked by The Financial Times, I’m still calling bullshit.

 Posted by at 10:11 am

  7 Responses to “Some (Slightly) More Refined Thoughts on the Apple-Beats Speculation”

  1. One quick thing about your writeup (all of which I agree with)… except… Everyone assumes apple’s foray into audio (the little white headphones) is shit. This headphones are tiny little audio miracles. They put together a pretty decent sound, earbuds that fit into *most* (not all) ears on the planet, and a really good push to talk + mic…. all for 25 bucks. They are not meant to be top of the line $3000 audio masterpieces – they are meant to bring clear audio and voice to 99% of the people on the planet at a reasonable price point. But the tech press compares those inexpensive headphones to something they’re not, and are deemed a “failure”, or mediocre. They’re not. They serve exactly the purpose they are meant to serve.
    It’s kind of the same for the Beats headphones. They fill their niche pretty well. There is a certain type of music they are built for, and a certain type of person they’re built for. Comparing them to an audiophile’s wet dream is BS. It’s like saying a hammer isn’t as good at taking down a building as a wrecking ball.
    There is no way on the planet that Apple would buy Beats for the audio tech. I would argue that Apple is light years ahead of anything Beats (who by the way – didn’t even build the damn things – it was all Monster) could do.
    If this deal does happen, I hope to high heaven there is something I’m missing here that Apple knows. I usually trust that they know what they’re doing, but I’ll agree with you that this whole deal seems a bit “off”.

  2. I agree with your assessment of Apple’s earphones, but they’ve traditionally been cited as a weak link in their audio offerings (which I guess applied more to the iPod-dominated ecosystem than it does now). There are earbuds that are better for the price, but not many. Throw in the mic and you’re correct in asserting they’re probably the only ones with those features at that price point. The Beats headphones don’t have the bargain/comes with your iPhone thing going for them. When you get into Beats price territory, you expect better kit, unless your brand appeals to people for different reasons. I think we both know it’s not about the tech; I’m glad at least one other person is as stumped about the reasons this deal makes sense for Apple.

    It’s stunning to me that so many people – including people I otherwise have a lot of respect for as tech writers – fall into this rationalization exercise concerning a deal for which the information consists of “2 dudes at FT sez so.” “This deal is about making Jimmy Iovine an acqui-hire.” Fucking what?! Apple is going to pay $3 billion for some dude? I sometimes wonder if tech reporting editorial departments have a union and have recently declared some sort of work stoppage – if these people ever existed in the first place. This is what Apple reporting has become: an echo chamber of reblogging/retweeting asshats extrapolating FT rumors.

  3. Only thing is – Remember the posters advertising the iPod?

    That thin white line that were the earbuds?

    When you sat down on the Tube with those things in your ears, you were taking the mantle of Kewl that those posters had. Everyonelse using something non-Apple cast covert envious glances at you.

    Today? Those Apple buds are nothing! Everyone has them.

    So what Beats have done is taken the “I’m some kinda of Audio Dweeb” headphones and made them cool. And not just Cool. De Rigeur Street Bling!

    My missus insists on Beats, £200+ headphones and a (£99?)set of buds. I can’t hear any/much difference between them and the £40 Skullcandy Rastas I wear, but I do notice other Tube riders sporting the Beats! They have that Kewl Mantle that I used to enjoy back in the day.

    The $3b (see what I did there?) price tag is a resonable multiplier of their $1B annual T/O. Maybe Apple are buying back into leading edge Street Cred, staying ahead of the rest with a living breathing walking advert for their wares?

    Maybe Beats = The New Streaming to the 16-25 age bracket that’s seems to define what’s hip & what’s not.

    And the ROW isn’t as hung up on this “Beats Race t’in'” as you Americans seem to be. Until this story started I’d never seen an image of Dr.Dre (although I did assume he was an African-American rapper) and the other guy? Never even heard of him.

    And to be honest – So What? & I don’t Care what colour skin my hdfone makers CEO & Chief Image Icon have, black American Rap is the dominant Teen culture around the World – Just get over it.

    Still think this thing is a Rumour tho. Brilliant & positive way to keep Apple on the lead edge of the Tech Headlines whilst spending $0, plus show Tim Cook has Biz Acquisition Cojones.

    That Apple PR lady that just resigned. Some kind of press relations genius I read.

  4. I don’t think anyone here is arguing whether Beats could be profitable in some way… it’s obvious they could – they sell overpriced bling and a story and make a killing, and they have a streaming service that could be profitable at some point. More power to them. Apple *could* make their money back from this deal through their hardware and software and be getting Dre and Iovine for a relatively small price (to Apple, that is). The big question is how the hell do they fit into Apple’s culture and future. While music is big business, I’d think Apple would be looking for someone that could close the film and cable deals above music. Maybe they think Iovine can do both? What the hell do I know, but it’s fun to armchair quarterback this train wreck of a rumor.

    And I completely agree with TMA… what constitutes so called “news” these days is pathetic. Fact checking has gone the way of the dodo.

  5. The 2 basic mistakes I hear analysts make when talking about this deal is 1. Apple could “make it work” and 2. it’s not a lot of money “for Apple”. People assume that because Apple is successful that any acquisition it makes will be successful, which lazily ignores if the acquisition is a “fit”. Analysts can disappear into own assholes (my favorite line from Silicon Valley) justifying how this deal “could” work. This is pageview fodder but shitty analysis. Does the deal make sense? As far as the “not a lot of money for Apple” crap, billions are billions. The way I see it written, it’s almost like an apology for a shitty deal, like it is used to described Google’s Moto or Nest deals. But the technoverse is less about opinionated dismissal than it is about entertaining the unverified and unlikely, then just jumping to the next rumor. I guess it attracts more attention than repeatedly says “this is stupid”.

  6. Since I wrote my original “this is shit” homage, I’ve tried to observe Beats in the wild. I work in NYC, and I have to admit, I see a lot of these things on the heads of the 18-26 crowd. I will admit that they’ve managed to imprint themselves on the market, but I will also bet you a shit-ton of that success is a result of being the Apple Store headphone poster boys.

    The reason I made the comment about Beats being an LLC is that I – nor anyone outside of Beats or the people they have chosen to share this information with – don’t know what they’re worth. Almost all of my least favorite class in business school, finance, was about determining the value of a company based on far more information than Beats has spit out. There is simply no way of knowing.

    I don’t know where or when the race card entered this discussion about the acquisition (I imagine it was shortly after one blogger decided he could drum up more page views by making it about that), but I certainly don’t give a shit. I grew up on Dr. Dre and have a lot of respect for what he’s done outside of rap. I just don’t think the deal makes sense for the amount of money that is being talked about.

  7. Yeah, you wrote it better than I did…. we’re in total agreement. Apple “could” make it work in some form I’m sure, but these idiots are mostly not asking “should” they make it work.

    Beats has a well known brand right now that sells a crapton of overhyped, useless bling. I have a super hard time believing they have the staying power of Nike or Apple. Anyone remember Ecco? Apple is in the business of selling well made, well thought out products that people love, not hype.

    As an Apple investor, I’m always looking at the pros and cons of the company and the management. While I wouldn’t put this on the level of a Motorola or Autonomy type catastrophe, I still have yet to see any sense whatsoever in it. I don’t believe it will happen any more than you do, but if it does… and if I don’t get a good sense of “why” from Apple… I will be watching them even more closely than I do now. It will take years, but this kind of decision making tends to snowball. If Apple starts slowly rotting from the inside out, we can look back and point to this as the start. (again, assuming this is even real)

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