Apple has bought Beats Electronics, the music and headphone company owned by rapper Dr Dre for $3bn- marking the most expensive deal in the tech giant’s 38-year history.
The move marks Apple’s attempt to muscle in on the music subscription service market, led by brands such as Spotify and Pandora. Apple currently only offers free-streaming service iTunes Radio.
The growing popularity of music streaming services such as Pandora and Spotify has been reducing sales of songs and albums, a business that iTunes has dominated for the past decade. With $1.1bn (£660m) in revenue last year, Beats should boost the tech giant’s earnings once the new fiscal year begins in October.
However, Beats is believed to have only 110,000 subscribers, far smaller than Spotify’s 10 million subscription base.
Beats also commands 62% of the $1bn (£600m) US market for headphones priced above $100 (£60), according to market research firm NPD Group.
The deal will see Dr Dre and music producer Jimmy Iovine join Apple and comes nearly three weeks after deal negotiations were leaked to the media.
The deal includes $2.6bn (£1.6bn) in cash and $400m (£239m) in Apple stock that will vest over an unspecified time period.
“Music is such an important part of all of our lives and holds a special place within our hearts at Apple,” Apple CEO Tim Cook said in a media release. “That’s why we have kept investing in music and are bringing together these extraordinary teams so we can continue to create the most innovative music products and services in the world.”
Iovine, a co-founder of Interscope Records, said: “I’ve always known in my heart that Beats belonged with Apple.”
Later, while speaking at a technology conference, Iovine said Apple’s earphone offerings had left him underwhelmed. He said the company makes them simply “to make sure the (iPhone) works”.
He added: “You listen to Apocalypse Now, and the helicopter sounds like a mosquito.”
Iovine also joked that he had “asked Apple every day for the last ten years” to work in partnership.
US sales of downloaded songs slipped 1% last year to $2.8bn (£1.7bn) while streaming music revenue surged 39% to $1.4bn (£840m), according to the Recording Industry Association of America.