For $3 Billion, Apple Buys Dr. Dre's Beats Electronics

The deal brings hip-hop producers Dr. Dre and Jimmy lovine into the Apple fold. And it also marks a strategic shift for the company, which has always eschewed splashy acquisitions.

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Apple is moving to the beat. The company's made it official. It's buying Beats Electronics, which streams music and makes the popular Beats headphones. Rumors of this deal leaked earlier this month. All told, Beats came with a $3 billion price tag - the largest acquisition in Apple's history. As NPR's Laura Sydell reports, it's a deal that has some analysts scratching their heads.

LAURA SYDELL, BYLINE: Apple's the company that transformed music for the digital age. With iTunes and the iPod, it developed some of the most innovative and high-quality technology of our time. Beats, which was founded by Dr. Dre and music impresario Jimmy Iovine, makes headphones that many consider so mediocre that they inspire YouTube satires like this one.

(SOUNDBITE OF YOUTUBE CLIP)

UNIDENTIFIED MAN: I only wanted the Beats because I liked the way they looked. And they're endorsed by the second coolest living rapper.

SYDELL: So why is Apple paying so much for Beats?

MIKE MCGUIRE: At first, the news was certainly puzzling to me.

SYDELL: That's Mike McGuire. He's an analyst with the research firm, Gartner.

MCGUIRE: But I think what we're seeing is Apple realizing, you know, as dominant as they are and as iconic as they've been, there are other products that have built up a great affinity, as well, and demographics that are probably going to be increasingly important to companies like Apple.

SYDELL: And here's the other thing - even if a lot of music snobs don't like the sound of Beats headphones, Mark Richardson, the editor-in-chief of the music review site Pitchfork, says Beats headphones are perfect for a lot of millennials are listening to, because they emphasize bass.

MARK RICHARDSON: In the last five or six years, the rise of, like, EDM music - this kind of festival ready, electronic dance music with super deep bass. That's just become a much more popular thing, along with the rise of Beats.

(SOUNDBITE OF ELECTRONIC DANCE MUSIC)

SYDELL: And along with those headphones and audio gear, Apple purchased Beats Music, a still small-streaming service. Apple is late to the game on streaming. Spotify just passed 10 million paying subscribers. Apple could have built its own streaming services. But there's some mistrust by music executives, who never felt happy about the way Apple set prices and dominated downloads. By buying Beats, says analyst McGuire, Apple's also getting Dr. Dre and Jimmy Iovine - two men with good music business connections.

MCGUIRE: It's not just the internal team that built the brand. It's all those partners those folks worked with, right. Those sorts of contacts are, you know - yeah - very important.

SYDELL: In a press release, Apple's CEO Tim Cook says music holds a special place within our hearts at Apple, that's why we're bringing together these extraordinary teams. But many Apple lovers fear that the acquisition is another sign that the company is losing its mojo since the death of its visionary founder Steve Jobs, who many believed would've built his own headphones or streaming music service. James McQuivey, an analyst at Forrester Research, isn't buying it. He says, Apple has been working on wearable technology - stuff like smart watches and other fitness wearables. Beats could help them with that market.

JAMES MCQUIVEY: If Beats is worth $3 billion to Apple, it's not for the revenue. It's not even for the brand. It's for the ability to put big technology on your body. And that's something that Apple would want to do.

SYDELL: And now that Apple owns some big headphones, it's something it's going to do. Laura Sydell, NPR news, San Francisco.

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