What Apple's $3 billion acquisition means to the music recording industry?

For years, iTunes has been a go-to brand for people who love to download (legally, that is) music from the internet. However, the trend has shifted slightly due to the music streaming services. The recent acquisition of Beats by Apple has created quite a stir among users, companies and tech experts. Most of them are asking the obvious question why. Here in this post, we’ll try to see this acquisition in a different way. We will try to see what this deal could mean to the world of music. Before digging deep into the acquisition, let us see where the music recording industry was before the dawn of online music distribution.

Slippery Slope

According to a study, music recording industry in the U.S. was earning 14.5 billion per annum in the year 1999. Since then, the numbers dropped to $7 billion by the end of 2013. A decline of almost 50% in the U.S. alone, the worldwide picture is even worse, showing a decline of almost 60%. These numbers are the cumulative of income from sales and licenses of recorded music.

For me, there are two reasons for this decline. First, the Internet, that makes illegal distribution of digital music as easy as pie. Second, the record companies’ slow response to the digital music revolution and stubbornness to get on board.

Apple’s iTunes didn’t help the cause either. The idea to sell single tracks instead of selling an album caught peoples’ eyes and was disastrous for the music recording industry. Yet, it proved to be a good thing for iPod sales. Apple sold 10 million iPods by the end of 2004 as compared to 2 million in the year 2003.

For the first time since iTunes’ inception, income from downloading music went down in the year 2013. The reason is music streaming services like Spotify, Beats Music, Rhapsody, and Google Play Music. Streaming services collect revenue through advertisement based free streaming services and premium subscription services. Streaming services have helped digital music industry a bit, but it won’t be sufficient to revive the recording industry to its former glory.

What exactly Apple has bought with Beats?

Apple has bought Beats Music for $3 billion, from which 2.6 billion was paid in cash and $400 million in equity. For this amount, Apple has acquired Beats headphones business and Beats Music streaming subscription service. Some would argue that Apple would want the streaming service more than the revenue from the accessories business. Some also argue that downloading is declining and streaming is going up. However, if you keep Apple’s future programs like wearables and smart homes in mind, the deal may seem quite reasonable. Apple already has an internet radio service iRadio, but this deal will put them in the interactive streaming business.

Wrap Up

Apple’s love for music is evident through the iPod and iTunes. It has changed the way we listen to and organize the music. Apple’s decision to buy Beats is about setting foot in the streaming service business without disturbing iTunes’ stature as the music download center, not to mention the talent they acquire in the form of Jimmy Iovine and Dr. Dre, two heavily influential people in the music business.