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Friday 19 September 2014

Billion dollar battle: Apple's dancing to cool new Beats

Software giant is trying on Dr Dre headphones for size as it prepares to buy out his company in its billion dollar streaming battle with Spotify. But what will the deal mean for the average music lover? Ed Power reports

Published 18/05/2014 | 02:30

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An employee organises headphones in a Beats shop
Spotify MD Adam Williams

The volume is about to crank up in the war for the future of music. Apple, the 50-tonne behemoth of the tech industry, is finalising a takeover of Beats, the headphones manufacturer and song streaming service with rapper Dr Dre as its public face. A $3.2bn (€2.3bn) price tag has been bandied – quite a figure for a company whose distinctive red and black 'cans' were initially dismissed as gimmicky and which is said to have signed only 111,000 subscribers to its on-demand music site – Apple will be coughing up roughly $29,000 per Beats customer.

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Why would Apple, the world's most profitable tech company, be interested in Beats, a brand mostly beloved by teenagers with a penchant for loud hip hop? It was established in 2008 in part because Dr Dre wanted a set of headphones with a super-heavy bass sound.

For the answer you have to cross the Atlantic from Apple HQ and head north, to Sweden, home to Spotify, the music streaming company presided over by 31-year-old entrepreneur Daniel Ek, a prodigy who founded his first start-up aged 14 and was a millionaire at 25. Having built a user base of 24 million, Spotify has in just a few years turned the record industry on its head – and now is ready to yank the rug from under Apple's iTunes' downloading store, until recently one of the most profitable divisions of the late Steve Jobs' empire.

With subscription streaming threatening to render the iTunes model of paying for and downloading individual music files (mp3s) redundant, Apple's brain trust can see the way the wind is blowing. We are moving from a time where consumers 'own' the music they enjoy to a future where they wish simply to experience it (full access to Spotify costs Irish users €9.99 a month – Beats has yet to launch here). The era of the vast record collection – whether vinyl stacked in your living room or music files crammed onto a hard drive – is at an end. Not even the most completist hoarder can compete with the essentially infinite selection offered by Spotify and rivals, running as they do into the tens of millions. And Spotify adds an additional 20,000 songs to is database every day.

Apple's problem is that it is stuck in a present about to become a very distant past. It dominates the music download market, a business set to fall off a cliff. Music download sales fell last year for the first time (only by 6pc admittedly – nonetheless, the rate of decline will surely accelerate). The situation Apple finds itself in is analogous to a horse-drawn cart manufacturer at the dawn of the automobile age. It needs to do something – acquiring Beats, which unveiled its streaming division only this January, may be the smartest short-term option. If it doesn't react soon Spotify will be out of sight.

'Streaming is going to be the way the majority of people experience studio tracks and album tracks," says Cathal Furey , chief executive of Irish music start-up FanFootage. "No one is going to be able to buy, from iTunes, the amount of music that Spotify or Beats or French competitor Deezer can give. The trend over the last 12 months is in one direction – everyone I know who is into their music has either moved to Spotify or is considering it."

In addition to taking advantage of Beats' presence in streaming – low subscriber base notwithstanding – it is possible Apple wishes to tap the company's music industry expertise, says Furey. Co-founder Jimmy Iovine is one of the business's most influential executives having founded Interscope Records and helped discover Bruce Springsteen and Meatloaf.

In contrast to stuffy, buttoned-down Apple, Beats management lives and breathes music and know how to work with artists.

The looming clash has an unexpected, almost surreal, Irish dimension, specifically a Cork one. Apple is long established on the north side of the city. Beats is for tax reasons nominally based 50 minutes away in the west Cork town of Clonakilty – though it employs nobody in Ireland and you are unlikely to see Dr Dre schlepping around the corner for a cheeky after-work Beamish.

Streaming is unquestionably the future – 10 years hence, it will be the means by which the majority of us experience music. There will be a small niche of vinyl fetishists, but the compact disc is likely to be extinct. This, arguably, represents good news for consumers – or at least those who do not covet 'ownership' of their records.

For artists, the way ahead is perhaps not so bright. Royalty payments from streaming are notoriously low: it was for that reason Radiohead's Thom Yorke made a chunk of his music unavailable to Spotify. The situation is not improved by Beats' entry. Its rate is even lower than Spotify's. So, even as music goes online , increasing numbers of artists may choose to turn their back on streaming and investigate a different way of reaching their audience – potentially leading to a huge fragmentation of the Spotify model.

"Streaming sites basically use your music for free," singer-songwriter Mark Eitzel told me in May 2013. "They become millionaires, the musician gains nothing but exposure. They put music in a format people want to hear. However it doesn't do me much good. It's not going to make me any more popular. It makes them richer."

Among the artists yanking their songs from Spotify are Choice Music Prize nominated Irish group Halves. They believe the Swedish company's business model devalues music. "If people want to download your music or listen to it or whatever, that's fine. What they do is distasteful," says frontman Brian Cash. "We're not going to miss the €1.37 we would have earned [from Spotify plays]. People have complained, 'it's so awkward – you're not on Spotify'. What? You couldn't spare the 10 seconds it takes to search for us?

"People are lazy nowadays."

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