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Why the Beats deal is still happening and is critical to Apple’s business

Published May 23rd, 2014 7:45AM EDT
Apple Beats Music Streaming Service

Even though the acquisition still hasn’t been announced, the Beats deal is apparently very much in the picture and appears to be a critical move for Apple’s business, TechCrunch has learned. Speculation has run wild surrounding Apple’s reasoning behind a major $3.2 billion Beats purchase, but the publication appears to have learned exactly what Beats brings to the table for Apple.

Apparently, Apple wants Beats both for its executive team and also for its Beats Music streaming service, which would help iTunes make a smooth transition to a streaming oriented business model.

A source told TechCrunch that Apple wants Dr. Dre and Jimmy Iovine, and the deal is happening even though it was “close to falling apart multiple times.”

“They want Jimmy and they want Dre,” said the source. “He’s got fashion and culture completely locked up.” Furthermore, the duo is expected to give Apple more power when it comes to negotiations with record labels.

Another source with direct source of Apple’s iTunes strategy says that Apple execs have considered an iTunes streaming service at least two years ago, but have not made a move from downloads to streaming in order not to endanger revenues that go to record labels from song and album purchases made on iTunes each year, and thus endanger Apple’s future relationships with those labels.

Apple’s iTunes music sale business brought in $1.53 billion last year, of which more than $1 billion were paid to labels. While Apple’s cut is not as important for the company compared to the profit it makes each year from iPhone, iPad and Mac sales, suddenly switching iTunes to a streaming music business would severely impact revenues for labels and artists, quickly disrupting a major revenue source.

By launching and curating a streaming service under the Beats Music brand – which by itself isn’t as popular as Spotify, which has passed 10 million paying users – Apple would smoothen the move, without losing significant revenue on music sales at once. And music, while not the most important business operation for Apple, has been a critical element of its growth, helping it lock in iPod buyers, turn many of them into iPhone owners, and further sell them other products in the years that followed, including iPads and Macs.

Chris Smith Senior Writer

Chris Smith has been covering consumer electronics ever since the iPhone revolutionized the industry in 2008. When he’s not writing about the most recent tech news for BGR, he brings his entertainment expertise to Marvel’s Cinematic Universe and other blockbuster franchises.

Outside of work, you’ll catch him streaming almost every new movie and TV show release as soon as it's available.