Neil Hughes
The $3 billion acquisition of Beats sparked a culture clash between the headphone maker and Apple, but the conflict was apparently an intentional attempt to shake things up in Apple's music business, according to a new report.
Beats's way of doing business apparently did not sit well with some on Apple's team, according to sources who spoke with Bloomberg. For example, Beats executive Jimmy Iovine has been known to carry out his own negotiations with artists and labels, sometimes unbeknownst to other people at Apple.
After the acquisition, Beats employees were also caught off-guard by what is said to be a "laborious approval process" for new products. Apple is said to be focused on quality, while Beats employees reportedly see the process as "unnecessarily bureaucratic."
Those conflicts were said to have led to a series of key departures, most notably Beats executive Ian Rogers, who left last August to pursue other ventures outside of the streaming music business. Rogers left just two months after the launch of Beats 1 radio, a project he spearheaded the development of.
Photo via Paul Stamatiou.Though the losses of key personnel were seen as problematic, one Apple executive said the clash between the Beats and Apple teams was "intentional," with the intent to have people from different backgrounds come together "to create something groundbreaking," according to Bloomberg.
Whatever they managed to build together is expected to be unveiled at Apple's annual Worldwide Developers Conference, where Apple Music will reportedly receive a more intuitive user interface, an expanded streaming radio service, and a "marketing blitz" to promote the changes. It's said that Apple is hoping a shakeup for its $10-per-month, one-year-old streaming service will help draw in more subscribers.
Apple acquired Beats Electronics for $3 billion in May of 2014. Though Beats was mostly known as a fashionable headphone maker, the company's Beats Music streaming service was a key part of the purchase.
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"To Iovine and other Beats executives, the remedy was obvious: the company should deemphasize iTunes and plow money into the on-demand streaming service that Beats built.
Apple executives agreed with the plan, calling off development of some products in favor of the new streaming service. Following the Beats acquisition in 2014, Apple scrapped the international rollout of iTunes Radio just a few hours before an event where it would have been announced. Employees who had been working on the project for more than a year were told it would be rolled into a new streaming service based on Beats.
But once Apple Music was released last June, the response was mixed. Reviewers praised the depth of the music catalog, but criticized its confusing interface. “The app’s design is cluttered with too much information and difficult to navigate,” wrote CNET.
Apple has been reluctant to promote the streaming service to customers who make purchases a la carte, not wanting to undermine its profitable download business".
Also from the article:"Several current and former staff members said product development has been harmed by a complicated leadership structure. Iovine is Apple Music's top executive, but Kondrk largely runs the day-to-day operations from Apple’s offices in Los Angeles and Cue provides oversight from Cupertino. Reznor has a strong influence on the look of the application."
The source article also attributes some of the friction to Iovine himself:
"While Iovine holds no official title – he’s just “Jimmy” in Cupertino – he’s tasked with the music product’s success ...
While Iovine’s connections make him valuable, they’re also a source of friction inside Apple. There were times when they were in the middle of negotiations with an artist’s managers and labels while, unbeknownst to them, Iovine was carrying out his own separate discussions, according to people familiar with the matter."
The possible "intentional" aspect received a single sentence mention.
Decent article, worth reading at Bloomberg. For those who missed the link in the AI article:
http://www.bloomberg.com/news/articles/2016-05-04/apple-to-revamp-streaming-music-service-after-mixed-reviews-departures
To this day I still see very little evidence that spending $3B on Beats was worth it. If there is any increase in the "other" line on Apple's financials it's due to Watch, not Beats headphones. And it sure seems there was/is a definite culture clash Iovine and the Beats team in LA and Apple employees in Cupertino. Was it not possible to get a streaming service off the ground without Jimmy Iovine? I find that hard to believe. Unless Eddy Cue isn't the master deal maker he's made out to be.
$3 billion? Still view this as a ridiculous acquisition.
While I agree $3 billion is a lot, and that they likely overpaid to acquire Beats - it is roughly 1% of their overall savings.
Not sure why everyone is so focused on the advantages they expected to get from the purchase either. This was likely a strategic buyout of a very competitive service. Better to fold them into their own umbrella than to have to compete with them on the market. Considering the potential of the streaming music industry, $3 billion now may well be a drop in the bucket in the future.
I actually had a small bet Jimmy would not last long at Apple. Not because he is a bad guy simply because of his independent style. I may yet be proved wrong but I would not be shocked if he 'amicably moved' on at some point in the not too distant future.