After yesterday's confirmation that Apple bought Beats Music and Beats Electronics for $3 billion, Apple senior vice president Eddy Cue and Beats CEO and cofounder Jimmy Iovine let Re/code's Kara Swisher and Walt Mossberg grill them at the tech site's Code Conference (with lawyers close at hand and no audience Q&A permitted). The discussion revealed a lot about what Beats will get out of the deal (besides $3 billion), but shed little light on what Apple plans to do with its expensive new division.
Iovine addressed a long-unanswered question about Beats Music's number of users, revealing that the streaming service has 250,000 subscribers—a far cry from Spotify's 10 million paying users. Earlier this month, Beats was alleged to have about 110,000 subscribers.
"From what I understand in the tech business, you get to try something out for a while before you figure out if it works," said Iovine in response to Mossberg's assertion that Beats' algorithm-plus-human-curation model wasn’t catching on. "So Apple is going to help us. And we’ll work on the model. We don’t know the exact model yet, but we need to put steroids into this thing."
Cue cited Apple's 800 million customers, but offered little insight into Apple's plans for Beats Music beyond "I’ll tell you what we have, and you can come up with your own ideas. We have a lot of customers. They know how to pay for things. We have great relationships with artists, and we know how to market them." Cue confirmed that Apple will maintain the Beats brand, comparing the decision to the fact that Apple maintains individual brands like iTunes. When Mossberg noted that Apple created the iTunes brand, Cue said "True. We'll see where this takes us." Apple's own streaming service, iTunes Radio, has lagged behind competitors like Pandora.
Beats Electronics started out making headphones, and the popular Beats By Dre line is part of the Apple deal. As for how Beats By Dre will fit into Apple's hardware strategy, Iovine said his dream is that "everyone who buys a phone around the world upgrades to good headphones." That seems like a criticism of Apple's own earbuds, which Iovine said Apple only makes "to see if the sound [on the hardware] works."
In response to Swisher's question about whether the deal signifies a change in attitude at Apple toward large acquisitions, Cue said "We’ve never had a rule that says 'thou shall not buy,'" noting that Apple bought 27 companies last year (although obviously to much less fanfare). "If we see an opportunity, we'll certainly strike," Cue said.
When asked who initiated the deal, Apple or Beats, Iovine coyly answered "How does somebody date for 10 years and then get married? All of a sudden it just happens."
Swisher pushed Iovine to say more, but Iovine did not comply. "I’m at Apple now. I can’t say anything."