Beats Electronics
Beats Electronics, LLC is an American consumer audio products and accessories manufacturer headquartered in Culver City, California. The company was founded in 2006 by the music producer Dr. Dre and the co-founder of Interscope Records and former CEO of Interscope Geffen A&M, Jimmy Iovine. Beats was acquired by Apple Inc. in 2014.
Beats' product line is primarily focused on headphones, speakers, and accessories. The company's original product line was manufactured in partnership with the AV equipment company Monster Cable Products. Following the end of its contract with the company, Beats took further development of its products in-house. In 2014, the company expanded into the online music market with the launch of a subscription-based streaming service, Beats Music.
In 2011, NPD Group reported that Beats' market share was 64% in the U.S. for headphones priced higher than $100, and the brand was valued at $1billion in September 2013.
For a period, the company was majority-owned by the Taiwanese electronics company HTC. The company reduced its stake to 25% in 2012, and sold its remaining stake back to the company in 2013. Concurrently, the Carlyle Group replaced HTC as a minority shareholder, alongside Dr. Dre and Iovine in late 2013. In May 2014, Apple announced it would acquire Beats for $3 billion in a cash and stock deal, the largest acquisition in Apple's history.
History
Formation
Beats was established in 2006 by music producer Dr. Dre and record company executive Jimmy Iovine. Iovine perceived two key problems in the music industry: the impact of piracy on music sales and the substandard audio quality provided by Apple's plastic earbuds. Iovine recalled that Dre said to him: "Man, it's one thing that people steal my music. It's another thing to destroy the feeling of what I've worked on." Iovine sought the opinions of musicians with "great taste", such as M.I.A., Pharrell Williams, will.i.am, and Gwen Stefani during the early developmental stage. Beats initially partnered with inventor Noel Lee and his company Monster Cable, an audio and video component manufacturer based in Brisbane, California, to manufacture and develop the first Beats-branded products. The first product, Beats by Dr. Dre Studio headphones, debuted in 2008 with the mission to allow users to "hear what the artists hear".To promote its products, Beats has featured celebrity endorsements by pop and hip-hop music performers, including product placement within music videos, and partnerships with musicians, fashion designers, athletes and other celebrities to develop co-branded products.
HTC purchase and non-renewal of Monster contract
In August 2010, mobile phone manufacturer HTC acquired a 50.1% majority share in Beats for $309 million. The purchase was intended to allow HTC to compete with other cellphone makers by associating themselves with the Beats brand, as the purchase also granted HTC exclusive rights to manufacture smartphones with Beats-branded audio systems. Despite its majority acquisition, HTC allowed Beats to operate as an autonomous company. Luke Wood, who became President of Beats in May 2014, joined the company in January 2010 when it was still a "licensing business." Prior to this, Wood had worked under Iovine at Interscope Records.In January 2012, BusinessWeek reported that Beats and Monster would not renew their production contract and their partnership ceased at the end of 2012. Dre and Iovine subsequently decided to oversee the entire operation of the company, from manufacturing to R&D, and aimed to double its workforce to around 300 employees. Monster would ultimately begin marketing its own competing line of premium headphones aimed towards an older demographic.
In October 2012, Beats unveiled its first two self-developed products, "Beats Executive" headphones and "Beats Pill" wireless speakers—Iovine believed the company would now have to "control own destiny" to continue its growth. Iovine also commented on how other headphone makers had attempted to emulate Beats' celebrity endorsement business model, stating "some of our competitors are cheap engineers who have never been to a recording studio. You can't just stick someone's name on a headphone that doesn't know anything about sound." Following the decision to transform Beats into an autonomous entity, the company's revenues reached the $1 billion mark, according to Iovine.
HTC sale and Beats Music
In July 2012, HTC sold back half of its stake in Beats for $150 million, remaining the largest shareholder with 25.1%. The sale was intended to provide "flexibility for global expansion while maintaining HTC's major stake and commercial exclusivity in mobile". In August 2013, reports surfaced that Beats' founders planned to buy back HTC's remaining minority stake in the company, and pursue a new, unspecified partner for a future investment.In September 2013, HTC confirmed it would sell its remaining stake in Beats back to the company for $265 million. Concurrently, Beats announced the Carlyle Group would make a $500 million minority investment in the company. The overall deal valued Beats Electronics at $1 billion and helped HTC turn a net profit of $10.3 million for Q4 of 2013, following HTC's first quarterly loss in company history.
The appointment of a new chief operating officer, a role previously filled by Wood, was announced in early November 2013. Matthew Costello, formerly of IKEA and HTC, was formally appointed to the role in May 2014.
In January 2014, the company launched Beats Music, a subscription-based online music streaming service. Prior to the launch of the service, Beats stated that it intended to provide a different type of streaming experience to what was available on the market at the time. Additionally, the service would only be available to consumers in the U.S. at inception.
Subsidiary of Apple Inc. (2014–present)
In May 2014, the Financial Times reported that Apple was in negotiations with Beats to purchase the company for $3.2 billion—the largest purchase in Apple's history. The impending deal was prematurely and indirectly revealed in a photo and YouTube video posted to Facebook by Tyrese Gibson on May 8, 2014; the video documented a celebration in which Gibson and Dr. Dre made boasting remarks about the acquisition, with Dre declaring himself the "first billionaire in hip hop", while Gibson declared that the "Forbes list" had changed. Both the photo and video were removed from Facebook the following morning, but both remain on Gibson's YouTube channel. Indeed, analysts estimated that the rumored deal would make Dr. Dre the first billionaire in the hip-hop music industry in terms of net worth, assuming he held at least 15% ownership in the company prior to the deal. Dr. Dre was listed with a net worth of $550 million on Forbes' The World's Billionaires 2014 list. It was also estimated that the Carlyle Group would receive a profit of $1 billion from the sale of its minority stake in the company.In May 2014, Apple officially announced its intention to acquire Beats Electronics for $3 billion, with Apple saying it would pay an initial $2.6 billion for Beats, and approximately $400 million "that will vest over time". Iovine felt that Beats had always "belonged" with Apple, as the company modeled itself after Apple's "unmatched ability to marry culture and technology". In regard to the deal, Apple CEO Tim Cook stated that "Music is such an important part of all of our lives and holds a special place within our hearts at Apple. 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."
The acquisition closed in August 2014. Dr. Dre and Iovine were hired as executive employees, and worked at Apple for years afterward. Beats Music users were prompted to switch to Apple Music following its launch in June 2015.
In April 2020, former Apple vice president of Music, Sports and Beats Oliver Schusser became the new head of Beats.
Bose lawsuit
In July 2014, Bose Corporation sued Beats, alleging its "Studio" line incorporated noise cancellation technology that infringed five patents held by the company. Bose also sought an injunction that would ban the infringing products from being imported or sold in the U.S. The lawsuit was settled out of court in October 2014; the details were not disclosed.Monster lawsuit
In January 2015, Monster Inc. sued Beats for fraud, alleging the company had used illicit tactics to force Monster out of the venture while retaining rights to the technologies and products it had co-developed, and engaged in collusion to harm Monster's audio products business. Monster also alleged that Beats had partaken in anti-competitive practices with retailers to force those offering Beats products to not offer Monster's competing products.In June 2015, The Wall Street Journal reported that in retaliation for the lawsuit, Apple revoked Monster's membership in the MFi Program in May 2015, meaning Monster could no longer manufacture licensed accessories for iPhone, iPod and iPad products, and must cease the sale of existing licensed products containing the certification or technology licensed through the program by September 2015.
The case was dismissed in August 2016, with a Supreme Court ruling that Beats "had the right to terminate the agreement".