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Apple Paying Just Under $500M for Beats Music, Over $2.5B for Electronics Division

When Apple made it official yesterday they had acquired Beats, the press release stated the deal was worth $2.6 billion in cash and $400 million in stock. Now, sources have revealed to the Wall Street Journal the breakdown of what Apple paid for:

Apple Inc. is paying slightly less than $500 million for the Beats Music streaming service, and more than $2.5 billion for Beats Electronics in its $3 billion deal, according to people familiar with the matter.

Sources say Beats Electronics had $1.3 billion worth of sales in 2013. The Beats Music division only launched in January and has 250,000 subscribers paying $10 per month.

According to people familiar with the matter, an accounting issue is the main reason for the breakdown of the purchase price, since the two Beats divisions are funded by different investors.

Examples of the complex investor list include billionaire Len Blavatnik, whose Warner Music Group had invested only in Beats Music, along with the latter’s chief executive Ian Rogers and their chief creative officer Trent Reznor (from the Nine Inch Nails), as they all have stakes in the music division but not Beats Electronics.

The Carlyle Group put up $500 million in 2013 for roughly a 30 percent stake in Beats Electronics and 5% in Beats Music, and saw the value of both companies at around $1.5 to 2 billion. Sources say the Carlyle Group had thought about the possibility of Apple buying Beats prior to making their investment.

As for why didn’t Apple buy a more established streaming music service such as Spotify? Two sources say the latter was not contacted by Apple at all, as the Cupertino company wanted Beats for its talent and brand recognition instead.

In the end, Apple has Beats Music and Beats Electronics, along with Dr. Dre and Jimmy Iovine, two figures seen as vital connections for making it easier to reach out to Hollywood.

Apple CEO Tim Cook described his talent acquisition yesterday in an interview with Re/code:

What Beats brings to Apple are guys with very rare skills. People like this aren’t born every day. They’re very rare. They really get music deeply. So we get infusion in Apple of some great talent.

Let’s see what Dr. Dre and Iovine can bring to the table. As Cook stated, “it’s all about the future.”

Founder and Editor-in-Chief of iPhoneinCanada.ca. Follow me on Twitter, and @iPhoneinCanada, and on Google+.