5 Things Holding Up the Apple-Beats Deal (Video)
When news broke on Thursday, May 8, that Apple was in talks to buy Jimmy Iovine and Dr. Dre's Beats Electronics for a shocking $3.2 billion, the deal's closure seemed imminent. In fact, Billboard's sources repeatedly said late that day that the transaction would be announced the following Monday … "Tuesday, latest."
Well, Monday and Tuesday passed, and we were assured the deal would actually be announced early this week. By early this week, we were told it would be announced next week. We, like other outlets, have been reassured the deal is happening … or as close to definitely happening as any source is willing to say given they're speaking on background. (Although the scuttlebutt on the Silicon Valley anonymous gossip app Secret might say otherwise.)
Below are five things we're hearing that may or may not be holding up deal talks. Reps for Beats and Apple were not immediately available for comment.
1. It's Complicated
It might seem like Apple -- the world's largest tech company, leader of innovation and with more cash in its reserves than most sovereign nations outside the G8 -- would find a $3.2 billion acquisition of a five-year-old brand-heavy, IP-lite consumer electronics manufacturer fairly straightforward, but it isn't, say sources. "Remember, this is the biggest deal they've ever done, and it's CEO Tim Cook's first really big deal," said one person privy to the discussions.
2. They Leaked the News Too Early
Another person who's been in and around the discussions tells Billboard that Apple was nowhere near ready to have this news break as it tries to work out what exactly it's getting for $3.2 billion. Let us help: two of the smartest music/pop culture big-picture thinkers and brand marketers out there, a popular brand with little original technology behind it and a digital music service built on the white-label service from MediaNet. (More on this in No. 5)
3. That Video Freaked Them Out
This is our favorite bit of gossip from our sources. Apparently, the Apple family near imploded with outrage when a video went up on Facebook of an "excited" Dr. Dre with R&B singer/former Coca-Cola pinup Tyrese. In the video, they share in language perhaps unsuitable for a family blog how Dre will be hip-hop's first billionaire and other nice things about Compton. People often forget that despite Apple being this company that makes sexy products with sexy profit margins and sexy retail outlets, it is not, in fact, a very sexy company. It is a conservative company, particularly without the leadership of its guiding light Steve Jobs, who would shake things up massively on a daily basis. This is not the kind of thing Apple is used to, which leads us to the next point.
4. How Will Jimmy Iovine and Dr. Dre Fit In?
One of the very early questions we asked after sources confirmed Iovine and Dre would likely be taking executive roles at Apple if the deal went through was, what the hell would they do there? Since then, we've heard from our sources and a ton of smart folk, including Steve Jobs biographer Walter Isaacson, who predict they will be overseeing all content. But we've also heard concerns as to whether they'll fit in or if they would be best suited as permanent consultants rather than full-time executives. One thing's for sure: Apple is suffering a crisis of confidence right now, and they could do with a pair who help them to "Think Different."
5. The Devil's in the Deal Terms
There's been much speculation Apple isn't buying Beats for its headphones but for Beats Music. It's as easy to shoot down as it is to agree with. Against that argument is the slow start Beats Music has had despite a ton of early marketing dollars and its AT&T partnership. In favor of that argument is the big marketing spend, the AT&T partnership itself plus Apple's 800 million credit cards on file and a seamless relationship with millions of device owners as well as iTunes Radio's slow start. The point of all this is that Beats Music was structured separately as a partly owned unit of Beats Electronics with backing from Len Blavatnik, the billionaire owner of Warner Music Group and other investors. Sources say there is still some discussion around figuring out the valuation of Beats Music. Given it has less than 200,000 subscribers, doesn't yet have much market traction and is built on a white label service, what is it worth to Apple? We'd heard a $200 million valuation before news of the Apple deal broke. Is it worth that much or in fact a lot more if it is the reason for the deal? This is what both sides have been unable to agree on so far, according to a source.
All will become clear -- "next week."
This article originally appeared on Billboard.com.