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Vertical Merger Analysis Apple Merge Beats

1534 words - 7 pages

Case: Apple buys Beats Electronics

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Word Count of main content: 1187

Introduction
In early May 2014, Apple disclosed its intention to buy Beats for US$3 billion and announced the deal completion in early August 2014, welcoming Beats to the Apple family. Apple’s rationale for buying Beats is best summed up by Tim Cook - “Music is such an important part of all of our lives and holds a special place within our hearts at Apple, that’s why we have kept investing in music and are bringing together these extraordinary teams so we can continue to create the most innovative music products and services in the ...view middle of the document...

For Beats Electronics, besides the good profit margins from premium headphones, the acquisition will also help to bring synergy to the two businesses as they are both designed for high quality music playbacks and premium users.
Apple's interest in Beats Music has a long-term focus, as the music industry gradually shifts away from downloads, Apple’s initial focus, to streaming services. Beats Music will give Apple the boost they need to catch up with Spotify and Pandora to regain their position in the market.
The acquisition of Beats will also secure Apple the talents they need for the further development and some may say the most important part of the deal - Jimmy Iovine and Dr. Dre. Where their talents and experience is believed to be able to help Apple revamp and run its whole music strategy for Apple and also to help break the stalemate on pursuing the content deals for the company's future products such, as Apple TV.
Analysis of impact on relevant players in the industry
Whether it’s a good deal or bad deal, Apple’s acquisition of Beats Music & Beats Electronics, the tech giant's largest acquisition, will have a huge impact on the music industry and beyond. Beats' financial backers clearly benefit from the sale price. Others, from competitors to customers, will also be affected as following:
a) First and most direct impact comes to Pandora and Spotify. Pandora and Spotify rank as the number one and number two music streaming apps in terms of downloads, which were best positioned to dominate the streaming business for years to come. Now with Apple’s iTunes Radio and Beats Music under one roof, another major competitor has emerged—with more than enough resources to stay in the game. Over the short term, Apple's entry into subscription music services could create more consumer awareness for the category and benefit all competitors. Over the long term, only the strongest subscription services will survive and pricing will be critical. Do Spotify and Pandora have the capital to compete on price with Apple?
b) The previous close partner of Beats will be the losers of Apple’s purchase of both Beats Music and Beats Electronics, like AT&T and HP. AT&T no longer offers Beats Music subscriptions to its subscribers as an add-on service until October 14. The cellular company has ceased giving customers the option to sign up for Beats Music when purchasing a new phone plan and the Beats Music website has been updated to remove its "Subscribe with AT&T" options. Beats Electronics was the supplier of the audio technology for HP – included in 15% to 20% of its consumer PCs products, including some of its tablets. HP confirmed that it will drop Beats Audio from its line of high-end PCs and tablets by the end of 2015 after Beat Electronics was acquired by Apple, HP’s rival in personal computers and tablets. It does put HP between a rock and hard place. If HP still advertises how wonderful Beats is in current HP devices now, it...

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