Apple is buying Beats Music and Beats Electronics in a $3 billion deal; consisting of a purchase price of approximately $2.6 billion, and approximately $400 million that will vest over time. Beats co-founders Jimmy Iovine and Dr. Dre will be joining Apple. In a first for the company, Apple will continue to use the Beats brand.

Jimmy Lovine: I’ve always known in my heart that Beats belonged with Apple.  The idea when we started the company was inspired by Apple’s unmatched ability to marry culture and technology.

Apple’s cash reserves stand at $159 billion, so a $3 billion deal will not dent its bank balance by much. In a statement, Apple CEO Tim Cook said the company is “bringing together these extraordinary teams so we can continue to create the most innovative music products and services in the world.” While iPods and iTunes revolutionized the way we listen to music, competition over the years have been stiff, and Apple has been struggling to keep up. Music streaming service Spotify and Pandora for example, boast of some four million and  250 million subscribers respectively; while the response to iTunes Radio has been lukewarm. Besides, only one to two per cent of listeners actually ended up buying music from iTunes Radio, according to Billboard.  Beats Music boasts of roughly 500,000 listeners, which seems a paltry number in comparison, till you consider that the service was launched just a few months ago, in January this year.

There is also the question of brand equity. The Beats brand has serious street cred, and now Apple gets to own that, and make it work in its favor. The Beats brand is used by other personal computing companies – some HP machines for example, boldly sport the ‘Beats Audio’ legend; it will be interesting to see, post-acquisition, how such collaborations pan out.

Formally established in 2008 as the brainchild of artist and producer Dr. Dre and chairman of Interscope Geffen A&M Records Jimmy Iovine, Beats comprises the Beats by Dr. Dre family of high-end consumer headphones, earphones, and speakers, as well as patented Beats Audio software technology and streaming music subscription service Beats Music.

Subject to regulatory approvals, Apple expects the transaction to close in fiscal Q4.

[Image courtesy: Beats Electronics]