Apple Beats deal dissected: $2.5b for electronics division, just $500m for streaming music service

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Apple’s latest deal with Beats isn’t all about streaming music and its future, but Cupertino is betting big on the electronics division of Beats dubbed Beats Electronics, sources familiar with the matter indicate.

We all know that Apple has acquired Beats for a whopping $3 billion – Cupertino’s largest acquisition till date – but what we don’t know is what has Apple agreed to pay for the streaming music service and the electronics division individually.

According to a report on The Wall Street Journal, Apple is paying a mere $500 million out of the $3 billion for the Beats music streaming service while the rest of the money – $2.5 billion – is being shelled out for Beats Electronics – the division of Dr. Dre and Jimmy Iovine’s company that sells headphones and other audio gear.

Detailing 2013 sales figures for Beats Electronics, the source revealed that the company’s sales totalled to $1.3 billion and had been profitable.

Source have also indicated that the breakdown of the purchase price was largely an accounting issue considering that both the divisions are backed by different investors.

Apple CEO Tim Cook has already indicated in an interview on Wednesday that the primary intention behind Beats’ acquisition was to recruit the right people and not to take the latter’s business forward and grow it.

Cook also added that Beats Music was better compared to its competitors as it uses humans to pick the songs which are to be streamed and not an automated algorithm. “It’s not all about zeros and ones,” Mr. Cook said.

Analysts however are of the opinion that Beats got more than a fair deal for Beats Music because if Spotify’s current valuation and latest round of funding are taken into account along with the subscribers it has, Beats Music is just worth $100 million.