Apple Inc share price down, nears acquisition of Beats Electronics in a $3.2-billion deal

Apple Inc will be making an expensive assault on the music streaming service market as the iPhone maker nears a deal to acquire Beats Electronics in a $3.2-billion deal, according to people familiar with the matter. The acquisition, which would be Apples largest, could be announced as early as next week, but both companies refused to comment.

According to people with knowledge of the negotiations, Apple is in advanced talks to purchase Beats Electronics LLC, founded by music producer Jimmy Iovine and hip-hop artist Dr. Dre. Apple will gain control over Beats audio equipment business, as well as its music streaming service which was started this year, dubbed Beats Music.

The alleged acquisition would bolster Apples online music presence a decade after Steve Jobs transformed the music industry with the iPod music player and the iTunes download platform. Ten years later, however, iTunes has waned in popularity as the general publics preferences shift to subscription-based music services, such as Spotify.

Currently, subscription services are considered to be the biggest growth area in the music service, with data by the IFPI (International Federation of the Phonographic Industry) showing that revenues in the segment jumped by 50% in 2013 to $1.1 billion. At the same time, Apple posted its first decline in downloads through its iTunes platforms since it was launched 11 years ago – by 2% to $3.93 billion. Apples new service is expected to give subscribers unlimited access to all of the catalogs songs for $10 per month and will be accessible through mobile devices, as well as web browsers.

Jon Irwin, the former president of rival music service Rhapsody International Inc, said, cited by Bloomberg: “They are buying into the future and the future is going to be streaming and subscription. Revenue from streaming and subscription is growing. Files and downloads are shrinking. Everyone has to engage in streaming and subscription.”

In contrast, Apple co-founder Steve Jobs was not only reluctant to undertake high-value acquisitions, but he also had a fundamental disagreement about music streaming services, insisting that people dont want to rent their music. Many investors have questioned whether Apple can once again be the leader in tech innovation after the death of Mr. Jobs and are ambivalent about the success of the Beats acquisition. Critics have accused the iPhone maker that it is slowly loosing its “cool”. Apples current management has conceded that its brand is in need of a revamp and thinks the deal might give them just that.

Apart from Beats Music, which will serve as an addition to Apples “iRadio” add-based offering it launched in 2013, Beats Electronics is widely popular for its “Beats by Dr Dre” line of top-notch headphones. Beats Electronics founders – music-industry executive Jimmy Iovine and hip-hop artist Dr. Dre, real name Andre Young, were inspired to create the brand because of the poor sound quality of the headphones bundled with Apples products.

However, after news of the possible acquisition broke out, analysts questioned whether Beats Electronics is worth its price. Although Apple had $133 billion in cash at the end of March, the headphone maker was valued at $1 billion during its last funding round in September, well below the $3.2 billion figure circling in the news. Moreover, most of Apples cash pile is held overseas and domestic funds have fallen by $16 billion to $18 billion after the resumption of dividend payouts in 2012, with investors calling on the company to return more cash as dividends and paybacks.

Apple Inc fell by 0.73% on Thursday to close the session at $587.99 per share, marking a one-year change of +28.73%. The tech giant is valued at $510.22 billion. According to CNN Money, the 46 analysts offering 12-month price forecasts for Apple Inc have a median target of $624.00, with a high estimate of $777.00 and a low estimate of $360.00. The median estimate represents a +6.12% increase from the last price of $587.99.