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Another Angle: Why Apple needs to get Beats so badly

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Rapper Dr Dre wears a pair of Beats headphones

Rapper Dr Dre wears a pair of Beats headphones

REUTERS

Rapper Dr Dre wears a pair of Beats headphones

Apple established itself as the centre of digital music for most of the world over the course of a decade. The company has resisted all-access music streaming services under the assumption that people would rather own, not rent, their music.

This belief is turning out to be false for more people every year, as music-industry data show. After years of steady growth, digital-music downloads globally declined slightly last year, according to IFPI, the recording industry trade group. Downloads still dwarf streaming – 67pc versus 27pc worldwide last year – but tastes are changing. Revenue from streaming has more than tripled since 2010, surpassing €725m for the first time last year, IFPI data show.

In Ireland, it's a similar trend. Services such as Spotify and Deezer are attracting smartphone-users in greater numbers, while download-to-purchase services are declining in line with falling iPod sales.

In this context, Apple is in advanced talks with Beats Electronics to acquire the headphone maker and streaming-music service for $3.2bn (€2.3bn), people with knowledge of the matter told Bloomberg News. If Apple does complete the deal as expected, it would give the company access to a fledgling subscription-music app with big potential. Beats declined to comment, and Apple didn't respond to a request for comment.

Like the Beats by Dre headphones, Beats Music has a celebrity cast of supporters, including Trent Reznor of the band Nine Inch Nails. The app lets subscribers stream more than 20 million tracks.

Beats Music is just a few months old and only available in the US, where the tide is shifting from downloads, mainly through iTunes, to streaming.

Some 23pc of wired Americans streamed music on subscription services, such as Spotify, during a six-month period last year, which was up from 19pc in 2012, according to an IFPI report. Downloads dropped a percentage point from 2012 to 2013. In smaller music markets, the move has happened much quicker.

Let's be clear: Apple wouldn't pay billions for Beats Music alone. Because Beats is private, it doesn't have to disclose financial information, but it's safe to assume the audio-equipment business accounts for virtually all of its revenue. The cheapest headphones (not to be confused with earphones) that Beats sells are €100 a pop. An acquisition would also give Apple some experienced and sharp – and expensive – executives. So if this was just about streaming, why not go for something cheaper? Rdio, a global streaming service created by the founders of Skype, would probably sell for a song.

And the 'New York Times' reported this week that the US telecoms operator AT&T is trying to offload Muve Music, a service targeted at lower-income Americans on Leap Wireless. OK, that's not exactly Apple's target demographic.

Beats would give Apple a sexy brand among affluent music consumers and a cash-cow headphones business. Bundling a free trial for Beats Music with a pair of expensive headphones or wireless speakers wouldn't be a bad way to get people hooked on streaming.

In the end, an Apple-Beats deal could be about nothing but a stream thang, baby.

Mark Milian writes for Bloomberg

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