Ed’s Daily Notes for May 9th   4 comments

Bloomberg: Apple Said to Be Near Buying Beats Electronics for $3.2B

What?!

In what would be the largest-ever purchase by the iPhone maker, Apple is in advanced talks to acquire headphone maker and music-streaming service Beats Electronics LLC for $3.2 billion, people with knowledge of the matter said.

A deal for the Santa Monica, California-based company, which was founded by music-industry executive Jimmy Iovine and hip-hop artist Dr. Dre, would bolster Apple’s online music capabilities by giving it ownership of the Beats Music service that started earlier this year. For $10 a month, subscribers get unlimited access to all of the songs in the service’s catalog through a smartphone, tablet or Web browser.

Music has long been one of the cornerstones of Apple’s business, with its iTunes store and the iPod music player that reignited the company’s growth more than a decade ago. Yet digital-download sales fell for the first time ever last year as people turn to streaming services such as Spotify Ltd., Google Inc.’s YouTube and Pandora Media Inc. to listen to music, according to Nielsen SoundScan.

“The age of digital downloads is basically over,” said Aram Sinnreich, a media professor at Rutgers University who studies the intersection of technology and music.

While paying $3.2 billion would use just a fraction of the $150.6 billion in cash and investments on Apple’s balance sheet, a deal would signal that the Cupertino, California-based company is serious about introducing its own music-subscription service to rival Spotify. Apple co-founder Steve Jobs had long resisted such a move, insisting that people don’t want to rent their music.

“They are buying into the future and the future is going to be streaming and subscription,” said Jon Irwin, the former president of rival music service Rhapsody International Inc. “Revenue from streaming and subscription is growing. Files and downloads are shrinking. Everyone has to engage in streaming and subscription.”

Apple took a step in that direction last year, introducing iTunes Radio, which is an advertising-supported music streaming service that competes with Pandora. ITunes remains the world’s largest seller of music, but is only for downloads of single tracks and albums.

With a deal, Apple also would gain control of the Beats headphones, for which the company is well known. Iovine and Dr. Dre started Beats in 2008 as people used iPods and smartphones to listen to more music on the go. The pair marketed the devices aggressively, showing the high-end headphones as stylish accessories for the general public and not just audiophiles.

If Google had done this deal, I would be furious. A music subscription service and headphones? This is not high-tech folks. As Iovine and Dr. Dre showed, anyone can start this business. Why would Apple pay a premium for this business?

For just a little more money, they could have bought BlackBerry (BBRY). At least that would make sense. Apple could have gotten itself into more cars.

Instead, they bought a 40 year old technology along with a music subscription service which they could have rolled out in a few weeks.

Bloomberg: China’s Inflation Slows More Than Estimated

More signs of economic trouble in China:

Consumer inflation in China moderated to an 18-month low and the decline in factory-gate prices persisted, giving the government more scope to loosen policies if a growth slowdown deepens.

The consumer price index rose 1.8 percent from a year earlier in April, the National Bureau of Statistics said today in Beijing. That compares with the median estimate of 2.1 percent in a Bloomberg News survey and a 2.4 percent gain in March. The producer-price index fell 2 percent, the 26th straight decline, after a 2.3 percent drop the previous month.

Today’s data add to signs that domestic demand remains muted, with falling commodity prices exacerbating overcapacity in industries including steel and cement. The lack of inflationary pressure will allow the People’s Bank of China to relax monetary policy to support the economy if Premier Li Keqiang’s full-year goal of about 7.5 percent is threatened.

“There’s room for policy easing,” said Chang Jian, chief China economist with Barclays Plc in Hong Kong. There is “clearly downward pressure on property prices and overall inflation,” and if real estate prices keep falling in the second half, “there will be more room for easing,” including a cut in banks’ reserve-requirement ratio, Chang said.

The problem is that China’s government hasn’t given any signs of easing monetary policy.

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Posted May 9, 2014 by edmcgon in China, News, Stocks, Technology

4 responses to “Ed’s Daily Notes for May 9th

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  1. Ed, I completely agree with you regarding Apple’s acquisition of Beats?? $3.2 billion? What are you, Mark Zuckerberg? Just plain stupid and way too much $$s.

    • Someone must have a friend at Apple, after all that is why Mark Zuckerberg over pays most of the time, it must apply to Apple too.

  2. I also do not understand the Beats purchase. In grand scheme it is trivial, but does not seem very strategic.

  3. I’ve never been an apple shareholder and was late to the game in buying their products, but this does not seem a bad deal to me. Their next product line is likely to be wearable tech, and that is what Beats makes (I don’t own any headphones beyond the buds that came with my MacBook air). And the price is not outrageous relative to Apple’s share price. Roughly three times sales (which is roughly what apple trades at), and Beats is growing faster. So if Beats is overpriced, so is Apple. And with as much cash as Apple has on its balance sheet earning no return, buying something that generates a higher return than zero and which might dovetail with Apple’s own product line makes sense to me. Doesn’t mean I’ll buy apple’s stock at almost 600 a share, but not because they’re paying 3 billion for a headphone maker.

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