Apple, Beats, and Content as Differentiation

on May 28, 2014

Moment’s ago, Apple confirmed they are acquiring Beats Electronics and, once the acquisition is approved, they will begin working on a roadmap together. In this Insider analysis, I share some perspective on the hardware side of the company. At the end of the article, I tease out how this deal may play into the future of entertainment. That is where I think the real pot of gold is in this deal.

Hollywood and the tech industry have never seen eye to eye. During my time working with labels, I realized this was front and center. They are two completely different industries with differing culture in every which way. Yet these two industries need each other to advance. Hollywood’s content wants to be digital, with a supporting business model, and be offered to the masses. Technology is the mechanism for taking it there.

Note Tim Cook’s remarks in this article:

“The ugly truth is that there is such a Berlin Wall between Silicon Valley and L.A.,” Mr. Cook said in an interview. “The two don’t respect each other, don’t understand each other.

“We think these guys have a very rare talent,” Mr. Cook continued. “We love the subscription service that they built—we think it’s the first one that really got it right.”

Rare talent to be sure. All things that sound very Apple-esque. Jimmy Iovine is one of the most powerful people in the entertainment industry and I am betting his vision goes far beyond music. But the pot of gold at the end of the rainbow could be content as differentiation. While I acknowledge this is a very hard long shot, and has been tried before, the kind of weight the Beats team has with decision makers has had not been a variable in many of the prior efforts.

What makes Apple’s products stand out is they are differentiated by hardware and by software. Much of their software runs on no other computers than their own. What if they can bring content into this fold? What if they can acquire exclusive deals, even if exclusive for short time windows, that are only available on their hardware and through their software? Then what if they do release lower cost phones in the $350 range? If you are in China, India, Brazil, Indonesia, and you are a fan of American music, movies, and even TV, would you pay $100 or $200 more for exclusive hardware, software, and content? Again, while I acknowledge the difficulty or “moon shot” of this effort, content (beyond apps) is an interesting differentiator if done right.

If Apple can bring the universe of Hollywood and consumer tech together it could be monumental, with many new sustainable revenue streams for all parties at a global level. Hollywood content is extremely popular in every major market across the globe. We can’t underestimate how valuable this content is at a global level.

Things like this are never easy and there are never any guarantees. If there is a bigger vision behind this acquisition on the future of entertainment in a global digital world then it will certainly be worth it. If my contacts in the entertainment industry are right in what they tell me about how powerful the team is, particularly Jimmy Iovine, then Apple may very well be in the driver’s seat for the future of entertainment. The next few years will be interesting to watch to see the fruit that comes from this deal.

Cross Platform
Another interesting tidbit is that the Beats service will be available on Android and Windows Phone. What makes this interesting is, for Android in particular, that service could serve as the first experience with an Apple product for hundreds of millions and soon to be billions of potential customers. I would argue that Apple paved the way for their future success in iPhone and iPad by bringing iTunes to Windows. It helped get iPods in the hands of millions of people who never owned an Apple product. Much great research exists that point out that once a customer tries one of your products they strongly consider more in the future.

What is Apple’s halo product for billions of mid-low end Android users that could sway them into the Apple ecosystem? Perhaps Beats Music, or even the headphones, are a step in that direction.

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