While Beats may be best known for its headphones, Apple made it clear in announcing its $3 billion acquisition of the company on Wednesday that its real interest lies in the subscription Beats Music streaming service, which will complement Apple's existing iTunes offerings.
The Beats Music product received top billing over Beats Electronics in Apple's press release announcing the deal, even though the headphone making side of the business is the brand's most recognizable role.
Apple said it plans to keep the subscription Beats Music service intact, alongside the existing iTunes Radio free streaming, and song purchasing through the iTunes Store. The company emphasized that the deal will make its music lineup "even better," in the words of iTunes and online services chief Eddy Cue.
Apple also touted the experience of Beats co-founder Jimmy Iovine in the music industry, noting that he has already been an "instrumental partner" for Apple and iTunes for over a decade.
Alongside the confirmation of the Apple acquisition, Beats on Wednesday updated its iPhone application with a lower annual subscription price of $99.99, down from the previous cost of $120. Monthly access without a yearly subscription is still available for $10 per month.
The purchase comes as sales of iTunes content have been slumping. New data released earlier Wednesday showed that monetization of Apple's online services declined an estimated 24 percent year over year in the first quarter of 2014.
Beats Music got off to a slow start, with just 110,000 subscribers as of March, but the fledgling operation did have an impressive subscription conversion rate: Just 0.17 percent of the 183 million tracks played on Beats Music in March were accessed by non-paying customers. Beats Music currently comes with a free 7-day trial, allowing users to sample the service before they commit to a month or full year.
When word of the deal first leaked earlier this month, industry watchers were baffled as to why Apple would make a play for Beats. Critics contended that Beats' bass-heavy headphones were a relatively niche market, and felt that the company was mostly driven by the Beats image and brand. Apple already has plenty of brand cachet, they said.
But supporters of the deal were quick to point out that the newly launched Beats Music service is a unique and valuable offering that's different from Apple's established iTunes Store and iTunes Radio. Consumers' music listening preferences have been changing, and users have increasingly preferred low-cost subscription services like Spotify over paying for each individual album they want to hear.
Like Spotify, Beats Music allows users to play the songs and albums they choose on demand. It also features a unique "personalization engine" that recommends tracks to users.
Those products will now be available from Apple in addition to the free ad-supported iTunes Radio, which users can listen to ad-free with a $24.99-per-year iTunes Match subscription. And Apple's market leading iTunes Store — which sells individual songs for between 69 cents and $1.29, along with full albums and deluxe editions — will remain for those who prefer to own their music outright.