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Apple: Please Leave the Beats to Dr. Dre


Apple is rumored to be acquiring Beats Electronics.

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The Financial Times is reporting that Apple (NASDAQ:AAPL) is in talks to purchase Beats Electronics for $3.2 billion, its biggest acquisition ever. Beats has two business lines -- a consumer electronics unit focused on headphones and speakers, and a streaming music service called Beats Music.

I just don't see what Apple gets out of this.

Apple is already great at making hardware. Does anyone really think Apple couldn't make an amazing set of premium headphones or a great Bluetooth speaker if it so wished? Smaller companies such as Logitech (NASDAQ:LOGI) and Harman (NYSE:HAR) do a fantastic job with these types of products, so why couldn't Apple?

And, to an extent, Apple already benefits from the popularity of Beats headphones and speakers by selling them in Apple Stores, which means they can be quickly dumped if they fall out of favor with consumers.

Now there is some merit to Apple getting into streaming music. We're clearly moving toward a streaming model, as evidenced by the stagnation of song download sales amid the growing popularity of services like Pandora (NYSE:P) and Spotify. Apple hasn't been completely blind to this. After all, it created iTunes Radio, allowing it to get its feet wet in streaming music.

But a high-profile acquisition like Beats would officially throw iTunes under the bus. According to industry estimates, Beats Music has about 200,000 subscribers, many of whom are coming from a free trial from AT&T (NYSE:T). Backing from Apple would grow that number, but the same money and energy could be used to push iTunes Radio.

If Apple is going to make a big splash into streaming, I'd much rather see it go straight for Spotify, which has over 24 million active users and over 6 million paying subscribers. With more than $150 billion in cash, money's clearly not an issue.

I'd guess there's maybe a 25% chance Apple actually buys Beats. I certainly don't want it to happen. Beats has a strong, growing brand, but it does nothing Apple can't do itself. Beats by Dre is good enough. We don't need Beats by Tim Cook.

Pandora, Logitech, and Harman are all indicated lower in early trading. Depending upon the broader market action, I wouldn't be surprised to see them bounce back.

Twitter: @MichaelComeau

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