Why Beats Electronics Is Worth $3.2B to Apple

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May 9 (Bloomberg) -- BGC Partners' Colin Gillis, Bessemer Venture Partners' Ethan Kurzweil and Bloomberg's Cristina Alesci discuss Apple being in advanced talks to acquire headphone maker and music-streaming service Beats Electronics for $3.2 billion. They speak with Trish Regan on Bloomberg Television's "Street Smart." (Source: Bloomberg)

Me most here was that typically you think of apple as the the creative force, the one to come up with something.

They spent so much money on rmb and here they are going out and buying -- r&d, and here they are going out and buying.

I do not think anyone was expecting this, even if they wanted them to deploy the cash.

They are the maker of headphones, the quality of the headphones are suspect, there's a lot of quality questions about the product themselves.

Would you say this was more of a hardware play rather than a streaming service?

The bulk of what they do with selby hardware.

If you want to buy the streaming service, there are other robberies you could acquire for less than beats.

-- properties you could acquire for less than beats.

It is a little bit more user-friendly.

They have about 28,000 users.

To be successful in streaming music you need anywhere between five and 10 million users, so there'll clearly not profitable yet.

Apple has released crumpled in music.

This is in spite of the fact that they were sent to pioneer and itunes.

Now people want to rent their music, and they are behind the curve.

Could they not just make it so that you could rent the music like a spotify or pandora?

They could do that, but they are behind the eight ball on a couple of trends.

They are no longer hip, they lost the cool factor with the younger people.

Specifically around cloud services like streaming but apple is terrible at those products.

This is where they are skating to where they think the pocket is going -- puck is going.

You come out in october and say you have 20 million users, and then we have had no up aides on users.

I've pressed the company or users that i tuned radio, and i have got nothing.

That there is further indication that they tried to capture streaming but they have not been able to do that.

Digital sales have slumped for the first time ever in 2013. everyone is moving to streaming.

They are the largest player, why not just buy the largest layer, tried to acquire spotify?

Why do you think they did this?

That is a lot of money.

That makes me nervous when you say $90 billion was not a lot.

You cannot look at cash because a lot of that will require a huge tax break.

If you look at the dividends they are paying out of the are actually short about $9 billion through 2015. you are saying we do not have money -- and has to make real sense.

It is not just a throwaway thing.

It is not just a throwaway thing, but it raises the question of if they are low on domestic cash, why not use your offshore cash?

Spot of a may not when a cell -- spotify may not want to sell.

Why do they need to acquire anything?

Other going to change the way these things look?

That is what analyst are scratching their heads about.

There's a missing piece here.

Their relationship with the music industry, the used to have all the power.

People wanted music on their phones, apple was the best place to go get it.

They made you go get it through their monopoly over the ipod and the iphone and how people bladed.

Now people want to get music in the cloud.

They do not have an advantage there.

They are not good at cloud services.

So they need to buy into something that they felt had that relationship, and could put them back on top with the music industry.

They think that is what they are getting here.

Do you think you're getting a good cloud service played by buying beats?

Not today.

What they're predicting is that in the future this is where the industry is going.

I think it is a hedge bet.

They're spending all of this money on r&d, why not build something?

You cannot build something with the cool factor.

They're not as cool as the used to be.

How long can beats be cool?

You have to wonder, what is the thinking?

People are trying to justify it by saying it brings in important people in the music business and they will take important roles in apple's business.

That is still a big price tag for one person.

I agree with you.

We are all scratching our heads.

We want to see apple be more aggressive but this move -- it seems so against the culture of that place.

Investors want to see apple do something innovated with the credit card information they have.

They have enormous credit card information of all of the people that are on itunes.

Why are they not developing something overpayments?

Why are they not going into uncharted territory?

Why are they not buying a brand?

This text has been automatically generated. It may not be 100% accurate.


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