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With Apple reportedly buying his music brand, Dr. Dre is ready for the billionaire title, or as R&B singer Tyrese Gibson said in a video posted online, "The Forbes list just changed in a big way." The video from last night of the rap producer in a celebratory mood suggests that the West Coast record mogul believes a $3.2 billion sale of Beats Electronics to Apple is imminent.
The video shows Gibson playing hype man for Dr. Dre, who says he's about to be "the first billionaire in hip-hop."
The rapper, who helped launch the careers of Eminem and 50 Cent, founded Beats Electronics, which makes high-price headsets. Beats would be Apple's biggest purchase ever, and a number of close Apple watchers are struggling to see the point.
Apple would bring a visionary music executive, Jimmy Iovine, who owns a large stake in Beats, into its ranks to help respark iTunes. But hiring-based acquisition is hard to justify at that billion dollar price tag, Apple observers say.
In fact, Wall Street hopes this deal scratches like a bad record. Here are the concerns:
- Beats headset sales are about $1 billion a year, according to a recent International Federation of the Phonographic Industry report, which would be a small boost to Apple's $180 billion business.
- Beats streaming service, a monthly subscription model for all-you-can-listen music, may not transfer industry licensing agreements in a sale. It's unclear whether the music rights, attained by Beats, could be utilized by Apple.
- Apple, which upended the music industry with iTunes in 2003, has been slow to reinvent its music offering while the rest of the music world has moved toward subscription and free streaming models. "Apple needs to get in the game, but do they need to spend $3 billion to buy Beats?" analyst Colin Gillis of BGC Partners said.
- If Apple is going to pay big bucks, why not buy Spotify? In fact, that streaming-subscription company is based in Stockholm, Sweden, which means Apple could use its foreign cash that wouldn't be taxed by Uncle Sam thanks to loopholes.
- Apple has never run a separate brand. If it buys Beats Music service, Gillis asks, "Will Apple do the right thing?" Will the subscriptions be available on Android or Windows phones? "That would be an interesting change of culture," he said. Apple has reportedly considered expanding iTunes to rival platforms.
- Apple has other pressing needs and could buy any company, some on the wish list for investors: Yelp, the payments company Square, Twitter, or even Yahoo, analyst Gene Munster of Piper Jaffray said.
- The perception of Apple is that its most creative days are behind it, and buying innovation has never been part of the strategy. A Beats acquisition plays into the narrative that Apple is no longer capable of homegrown hits like iPods, iPhones and iPads.
Meanwhile, check out the aforementioned video.