Though Apple's acquisition of Beats, by most accounts, appears to be a play for the company's music subscription service, the Wall Street Journal reports that the $3 billion purchase price was weighted more heavily towards the company's hardware business.
According to the Journal, Apple valued the Beats streaming service at $500 million and is paying approximately $2.5 billion for everything else. The Journal is quick to add, however, that this is likely the result of financial maneuvering as the Beats music service was funded by a different group of investors.
The people familiar with the matter cautioned that the breakdown of the purchase price was largely an accounting issue, because the two Beats units are backed by different investors.
The report also relays that Apple at no point contacted Spotify to discuss a potential acquisition, lending more credence to the notion that Apple executives were particularly enamored with Beats' curated playlists.
Recall that Tim Cook was rather effusive when discussing Beats' streaming music service.
We get a subscription music service that we believe is the first subscription service that really got it right. They had the insight early on to know how important human curation is. That technology by itself wasn't enough - that it was the marriage of the two that would really be great and produce a feeling in people that we want to produce.
What's more, Spotify currently has a valuation of about $4 billion and the company may have sought even more from Apple for a potential buyout.
By going after Beats, Apple essentially gets the same service as Spotify, albeit with much fewer subscribers. That shouldn't be much of a long-term problem for Apple, though, as the company will likely leverage the immense popularity of the iPhone and iPad to accelerate subscriber growth. And on top of that, Apple is taking control of Beats' headphone business which is a success in its own right, audiophile complaints notwithstanding.
In summing up Apple's interest in Beats, the Journal quotes noted analyst and industry observer Horace Dediu who I think really nails it on the head.
"To reposition the iTunes music empire for the future, that's easily worth $3 billion."