4 ms·

You'd have to be pretty insane to spend $3b to get into the content industry in 2014. First, it's an industry that's been plummeting for a decade, secondly, the

by swombat 12y ago

You'd have to be pretty insane to spend $3b to get into the content industry in 2014. First, it's an industry that's been plummeting for a decade, secondly, the entire recording industry is worth about that much, and thirdly, the entire concept of making money from copyrighted works of art is under threat. This theory doesn't hold water, sorry.

JumpCrisscross 12y ago
The meat of this deal is the headphones business [1]. I'm opining on the transaction's optionality for Apple. A lot of attention has been given to the streaming service. I'm pointing out another joker Apple may have considered to hold, if not immediately play. [1] https://news.ycombinator.com/item?id=7812793 https://news.ycombinator.com/item?id=7812793
- stcredzero 12y ago
  How did you arrive at the 15% margin figure?
  - JumpCrisscross 12y ago
    ($3 billion purchase price [1] / 14.9x AAPL P/E ratio [2]) / $1.3 billion 2013 Beats headphone sales [3]. We are asking how much in earnings (E) would Beats need to earn to give a $3 billion price (P) no more than a 14.9x P/E ratio. We then turn those minimum earnings E and turn them into a quick-and-dirty margin by dividing E by sales. [1] http://www.nytimes.com/2014/05/29/technology/apple-confirms-its-3-billion-deal-for-beats-electronics.html?src=twr&_r=0 http://www.nytimes.com/2014/05/29/technology/apple-confirms-... [2] https://www.google.com/finance?q=aapl&ei=_0qGU5C_BabzsgeenYHACQ https://www.google.com/finance?q=aapl&ei=_0qGU5C_BabzsgeenYH... [3] http://nypost.com/2014/05/27/apple-cuts-purchase-price-of-beats/ http://nypost.com/2014/05/27/apple-cuts-purchase-price-of-be...
    - deleted 12y ago
      [deleted]
    - Chronic26 12y ago
      Using Apple's P/E ratio with Beats sales assumes that the Beats headphone business is exactly the same (or very similar) as Apple's overall business, which is not the case. A comparables analysis would be more relevant.
- abalone 12y ago
  The main evidence you give in support of that claim is that the service doesn't have a lot of customers. But that is true for literally just about every other Apple acquisition. Apple buys technology and talent in the early stages or in component form. Like Tim Cook said there's 70+ other examples of tech & talent acquisitions to look at, and this is just another one of them. It makes sense financially for Apple, sure, but only in the sense that it doesn't lose them money to purchase the attached headphones business. That business would not even register as a blip in their future growth to be the main goal of the deal. His other quote was how he was looking forward to Iovine & Dre working on revolutionizing the music industry. That's not about headphones.
B-Con 12y ago
It's plummeting because it's run by in outdated ways by companies that haven't adapted to new technology. A forward-thinking company that embraces technology would have some advantages.
- dublinben 12y ago
  A company like Pandora or Spotify? Two debt-financed companies that still can't turn a profit from music.
  - 001sky 12y ago
    Pandora and spotify are structurally unprofitable because of their licensing problems/payments. Apple is %500Bn company-- big enough to become a label--has the marketing expertise (iTunes) and Capital ($X0Bns cash) to be a next-generation 'label'. Or maybe I'm missing something?
    - dublinben 12y ago
      If Apple (or Google) had wanted to buy out the record labels and their catalogs, they could have done so years ago. They obviously didn't, probably because it's a dying industry that isn't nearly as profitable as their current products. The very idea of a 'record label' is a relic of the 20th Century, when all recorded music was distributed on heavy physical artifacts.
      - 001sky 12y ago
        Not sure I follow. Who said anything about buying out the record labels? Apple can just <become> a label-replacement. There is still a need for a distribution/production/promotion service layer in music biz.
  - neura 12y ago
    Neither of which also sell music in their own online stores, so it's hard to make a fair comparison. Also, Apple's iRadio is probably not taking off as well as they'd like and Beats Music already has a better feature set.
samstave 12y ago
Apple made 170 Billion dollars last year. They are insane not to try to spend chump change on the music industry. The own the delivery of sound from that industry INTO a vast % of the consumers of it. Apple is going to own the entire experience of media consumption for some % of their customer base. They will be the label, the distribution, the hardware and the content. A 100% apple audio feed, all wrapped up in a tight little box tied directly to your bank account. Every click costs you something.
- SoftwareMaven 12y ago
  Apple has never been one to nickle and dime their customers. While I have little doubt the model will have some component of "you pay for what you use", you can be sure it will be done in such a way that 1) much of the cost is buried in the cost of the hardware and 2) if doesn't feel like every click is costing you something.
  - bitserf 12y ago
    In general, perhaps not, but for a specific example, iCloud storage. At a minimum, there should be enough storage for a full backup of each device. NZ$125/year for 50GB is, to put it mildly, somewhat subpar.
zwentz 12y ago
Couldn't the same have been said before with the phone industry? The tablet industry?

by swombat 12y ago

JumpCrisscross 12y ago

The meat of this deal is the headphones business [1]. I'm opining on the transaction's optionality for Apple. A lot of attention has been given to the streaming service. I'm pointing out another joker Apple may have considered to hold, if not immediately play. [1] https://news.ycombinator.com/item?id=7812793 https://news.ycombinator.com/item?id=7812793

stcredzero 12y ago
How did you arrive at the 15% margin figure?
- JumpCrisscross 12y ago
  ($3 billion purchase price [1] / 14.9x AAPL P/E ratio [2]) / $1.3 billion 2013 Beats headphone sales [3]. We are asking how much in earnings (E) would Beats need to earn to give a $3 billion price (P) no more than a 14.9x P/E ratio. We then turn those minimum earnings E and turn them into a quick-and-dirty margin by dividing E by sales. [1] http://www.nytimes.com/2014/05/29/technology/apple-confirms-its-3-billion-deal-for-beats-electronics.html?src=twr&_r=0 http://www.nytimes.com/2014/05/29/technology/apple-confirms-... [2] https://www.google.com/finance?q=aapl&ei=_0qGU5C_BabzsgeenYHACQ https://www.google.com/finance?q=aapl&ei=_0qGU5C_BabzsgeenYH... [3] http://nypost.com/2014/05/27/apple-cuts-purchase-price-of-beats/ http://nypost.com/2014/05/27/apple-cuts-purchase-price-of-be...
  - deleted 12y ago
    [deleted]
  - Chronic26 12y ago
    Using Apple's P/E ratio with Beats sales assumes that the Beats headphone business is exactly the same (or very similar) as Apple's overall business, which is not the case. A comparables analysis would be more relevant.
abalone 12y ago
The main evidence you give in support of that claim is that the service doesn't have a lot of customers. But that is true for literally just about every other Apple acquisition. Apple buys technology and talent in the early stages or in component form. Like Tim Cook said there's 70+ other examples of tech & talent acquisitions to look at, and this is just another one of them. It makes sense financially for Apple, sure, but only in the sense that it doesn't lose them money to purchase the attached headphones business. That business would not even register as a blip in their future growth to be the main goal of the deal. His other quote was how he was looking forward to Iovine & Dre working on revolutionizing the music industry. That's not about headphones.

B-Con 12y ago

It's plummeting because it's run by in outdated ways by companies that haven't adapted to new technology. A forward-thinking company that embraces technology would have some advantages.

dublinben 12y ago
A company like Pandora or Spotify? Two debt-financed companies that still can't turn a profit from music.
- 001sky 12y ago
  Pandora and spotify are structurally unprofitable because of their licensing problems/payments. Apple is %500Bn company-- big enough to become a label--has the marketing expertise (iTunes) and Capital ($X0Bns cash) to be a next-generation 'label'. Or maybe I'm missing something?
  - dublinben 12y ago
    If Apple (or Google) had wanted to buy out the record labels and their catalogs, they could have done so years ago. They obviously didn't, probably because it's a dying industry that isn't nearly as profitable as their current products. The very idea of a 'record label' is a relic of the 20th Century, when all recorded music was distributed on heavy physical artifacts.
    - 001sky 12y ago
      Not sure I follow. Who said anything about buying out the record labels? Apple can just <become> a label-replacement. There is still a need for a distribution/production/promotion service layer in music biz.
- neura 12y ago
  Neither of which also sell music in their own online stores, so it's hard to make a fair comparison. Also, Apple's iRadio is probably not taking off as well as they'd like and Beats Music already has a better feature set.

samstave 12y ago

Apple made 170 Billion dollars last year. They are insane not to try to spend chump change on the music industry. The own the delivery of sound from that industry INTO a vast % of the consumers of it. Apple is going to own the entire experience of media consumption for some % of their customer base. They will be the label, the distribution, the hardware and the content. A 100% apple audio feed, all wrapped up in a tight little box tied directly to your bank account. Every click costs you something.

SoftwareMaven 12y ago
Apple has never been one to nickle and dime their customers. While I have little doubt the model will have some component of "you pay for what you use", you can be sure it will be done in such a way that 1) much of the cost is buried in the cost of the hardware and 2) if doesn't feel like every click is costing you something.
- bitserf 12y ago
  In general, perhaps not, but for a specific example, iCloud storage. At a minimum, there should be enough storage for a full backup of each device. NZ$125/year for 50GB is, to put it mildly, somewhat subpar.

zwentz 12y ago

Couldn't the same have been said before with the phone industry? The tablet industry?