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What a difference three weeks can make. Analysts who “struggled to see the rational” behind Apple’s acquisition of Beats when it was a $3.2 billion rumor now think it’s a pretty smart move. “Probably the only smart move within the last 3 years!” according to one Apple skeptic.
Below: Excerpts from the notes we’ve seen so far. More as they come in.
Katy Huberty, Morgan Stanley: Apple beats the service drum.“Subscription music service could make the deal a home run, with every 1% penetration of Apple’s 800M account base equating to $960M of revenue. Apple believes Beats offers the right strategy for streaming music as it leverages both algorithms and 200 human curators to create playlists, which differentiates it from competitors.”
Trip Chowdhry, Global Equities: A smart move from Apple, and probably the only smart move within the last 3 years! “Currently, Beats Music Streaming Service only has 250K subscribers — but with Apple’s power in distribution (iOS Devices and AppStore), subscription to Beats Music Streaming Service can easily grow to 20 million subscribers within the next 12 to 18 months.”
Gene Munster, Piper Jaffray: Thoughts on the now-confirmed Beats deal. “We believe that if successful, adding Iovine and Dr. Dre could help propel Apple into the next level in its content offering, particularly in video, which could pave the way for new products including a television. Finally, given that Beats is the largest acquisition of Apple’s history, we believe it could open the door to other larger acquisitions, potentially around Internet services outside of content.”
Daniel Ernst, Hudson Square: AAPL Beats rhythm and blues. “On balance we are not fans of the Beats acquisition, although, we do not expect a negative market reaction to the news, and we concede Apple Beats holds promise to exceed our very low expectations. As a music-focused premium hardware maker with a budding, well-curated service component, Beats does fit well with Apple, and at $2.6B, the cash deployed represents just 1.7% of the company’s 3/31/14 balance. However, in our opinion even within music, there exists more impactful targets like Sonos or Spotify and moreover so many more targets in a vast array of segments either not, or not well served by Apple today including cloud services, security, commerce/payments, television and games.”
Benedict Evans, Andreessen Horowitz: Content Is King? “Music has gone from being a key strategic lever in the tech industry to an afterthought. The same applies to movie and TV libraries — media has gone from being a choke-point to a check-box, commodity feature than every platform has to offer but where none has any particular advantage… So for a platform owner or device maker, the content you can offer is no longer a strategic asset. Content doesn’t sell devices, because they all have the same content.”
Ben Bajarin, Creative Strategies: Apple, Beats, and Content as Differentiation. “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.”