Apple sings a different tune with Beats deal

Fri May 9, 2014 6:54pm EDT
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By Edwin Chan and Christina Farr

SAN FRANCISCO May 9 (Reuters) - Apple Inc's plan to pay $3.2 billion for Beats Electronics, which makes headphones and has an up-and-coming streaming music service, may herald a bolder use of its swelling cash pile and galvanize the iPhone maker's move into wearables.

Investors are still struggling to make sense of why CEO Tim Cook would break Apple's decades-long tradition of relatively minor acquisitions of about $200 million to $400 million. Most observers say it's going after a mix of technology and music industry talent in an effort to revive digital music sales.

Shares in the iPhone maker, which have been stuck mostly at or below $600 for over a year, ended 0.4 percent lower at $585.50 in the first day of trading after the news broke. Apple declined to comment on the deal, which sources have said may still fall through.

Some analysts said the planned acquisition would be in line with Apple's other classic efforts to give consumers what they never knew they wanted -- a key tenet of the late Steve Jobs. While not a fan of streaming music, he believed music was integral to the mobile experience. But Apple's year-old stab at music streaming, iTunes Radio, has failed to catch on broadly.

Streaming music services generally rely on software algorithms to put together lists of tunes. Beats claims a customized system that uses software relies and "handpicked" playlists. Analysts point out the potential for Apple to tailor recommendations to a listener's mood or activity, as future wearables measure such things as heart rate, sunlight and noise.

A smartwatch-based streaming music service could deliver the right tunes at the right time, the same way smartphones are evolving toward "predictive" or contextual actions.

"This is a critical time. They need to get the iPhone 6 right, and wearables right," Cowen & Co analyst Tim Arcuri said. "This technology helps to create a content delivery mechanism that's unlike what anybody else has."

Apple could also benefit from Beats' reputation for cool products, attributed to music producer Jimmy Iovine and co-founder Dr Dre, who on Friday proclaimed himself hip-hop's first billionaire.   Continued...