'Intentional' culture clash between Apple, Beats causes friction, aims to 'create something groundb

Posted:
in iPod + iTunes + AppleTV edited May 2016
The $3 billion acquisition of Beats sparked a culture clash between the headphone maker and Apple, but the conflict was apparently an intentional attempt to shake things up in Apple's music business, according to a new report.




Beats's way of doing business apparently did not sit well with some on Apple's team, according to sources who spoke with Bloomberg. For example, Beats executive Jimmy Iovine has been known to carry out his own negotiations with artists and labels, sometimes unbeknownst to other people at Apple.

After the acquisition, Beats employees were also caught off-guard by what is said to be a "laborious approval process" for new products. Apple is said to be focused on quality, while Beats employees reportedly see the process as "unnecessarily bureaucratic."

Those conflicts were said to have led to a series of key departures, most notably Beats executive Ian Rogers, who left last August to pursue other ventures outside of the streaming music business. Rogers left just two months after the launch of Beats 1 radio, a project he spearheaded the development of.


Photo via Paul Stamatiou.


Though the losses of key personnel were seen as problematic, one Apple executive said the clash between the Beats and Apple teams was "intentional," with the intent to have people from different backgrounds come together "to create something groundbreaking," according to Bloomberg.

Whatever they managed to build together is expected to be unveiled at Apple's annual Worldwide Developers Conference, where Apple Music will reportedly receive a more intuitive user interface, an expanded streaming radio service, and a "marketing blitz" to promote the changes. It's said that Apple is hoping a shakeup for its $10-per-month, one-year-old streaming service will help draw in more subscribers.

Apple acquired Beats Electronics for $3 billion in May of 2014. Though Beats was mostly known as a fashionable headphone maker, the company's Beats Music streaming service was a key part of the purchase.
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Comments

  • Reply 1 of 40
    gatorguygatorguy Posts: 20,272member

    "To Iovine and other Beats executives, the remedy was obvious: the company should deemphasize iTunes and plow money into the on-demand streaming service that Beats built.

    Apple executives agreed with the plan, calling off development of some products in favor of the new streaming service. Following the Beats acquisition in 2014, Apple scrapped the international rollout of iTunes Radio just a few hours before an event where it would have been announced. Employees who had been working on the project for more than a year were told it would be rolled into a new streaming service based on Beats.   

    But once Apple Music was released last June, the response was mixed. Reviewers praised the depth of the music catalog, but criticized its confusing interface. “The app’s design is cluttered with too much information and difficult to navigate,” wrote CNET.

    Apple has been reluctant to promote the streaming service to customers who make purchases a la carte, not wanting to undermine its profitable download business".

    Also from the article:
    "Several current and former staff members said product development has been harmed by a complicated leadership structure. Iovine is Apple Music's top executive, but Kondrk largely runs the day-to-day operations from Apple’s offices in Los Angeles and Cue provides oversight from Cupertino. Reznor has a strong influence on the look of the application."

    The source article also attributes some of the friction to Iovine himself:
     "While Iovine holds no official title – he’s just “Jimmy” in Cupertino – he’s tasked with the music product’s success ...
    While Iovine’s connections make him valuable, they’re also a source of friction inside Apple. There were times when they were in the middle of negotiations with an artist’s managers and labels while, unbeknownst to them, Iovine was carrying out his own separate discussions, according to people familiar with the matter."

    The possible "intentional" aspect received a single sentence mention. 

    Decent article, worth reading at Bloomberg. For those who missed the link in the AI article:
    http://www.bloomberg.com/news/articles/2016-05-04/apple-to-revamp-streaming-music-service-after-mixed-reviews-departures




    irelandtechloverlord amhrancornchip
  • Reply 2 of 40
    rogifan_newrogifan_new Posts: 3,823member
    To this day I still see very little evidence that spending $3B on Beats was worth it. If there is any increase in the "other" line on Apple's financials it's due to Watch, not Beats headphones. And it sure seems there was/is a definite culture clash Iovine and the Beats team in LA and Apple employees in Cupertino. Was it not possible to get a streaming service off the ground without Jimmy Iovine? I find that hard to believe. Unless Eddy Cue isn't the master deal maker he's made out to be.
    SpamSandwichmr osandorroger wadelord amhranbrakken
  • Reply 3 of 40
    awilliams87awilliams87 Posts: 264member
    $3 billion? Still view this as a ridiculous acquisition.
    SpamSandwichsandor1983
  • Reply 4 of 40
    While I agree $3 billion is a lot, and that they likely overpaid to acquire Beats - it is roughly 1% of their overall savings. 
    Not sure why everyone is so focused on the advantages they expected to get from the purchase either. This was likely a strategic buyout of a very competitive service. Better to fold them into their own umbrella than to have to compete with them on the market. Considering the potential of the streaming music industry, $3 billion now may well be a drop in the bucket in the future. 
    calipacificfilmcornchip
  • Reply 5 of 40
    MacProMacPro Posts: 18,141member
    I actually had a small bet Jimmy would not last long at Apple.  Not because he is a bad guy simply because of his independent style.  I may yet be proved wrong but I would not be shocked if he 'amicably moved' on at some point in the not too distant future.
    SpamSandwich1983
  • Reply 6 of 40
    NY1822NY1822 Posts: 591member
    sog35 said:
    To this day I still see very little evidence that spending $3B on Beats was worth it. If there is any increase in the "other" line on Apple's financials it's due to Watch, not Beats headphones. And it sure seems there was/is a definite culture clash Iovine and the Beats team in LA and Apple employees in Cupertino. Was it not possible to get a streaming service off the ground without Jimmy Iovine? I find that hard to believe. Unless Eddy Cue isn't the master deal maker he's made out to be.
    It would have taken at least a year for Apple to build out a streaming business themself. Buying Beats was a good decision.

    13 million subs x $120 a year  = $1.5 billion in revenue
    Beats hardware is about $1.5 billion a year
    http://www.fastcompany.com/3015051/major-beats-beats-electronics-may-be-on-track-to-hit-14b-in-2013-revenue

    So that's about $3 billion a year in revenue.

    Now add in Iovine/Dre connections and know how in the industry.

    Buying a company for 1x revenue that has a high margin product (Beats headphones) and a product you lack (steaming) was a great deal.

    Remember time is money. And more time for Spotify/Pandora unchallanged by Apple would have been really bad for Apple. No doubt Apple could have built a streaming business but it would have taken at least a year. A did you not see how horrible Apple Radio was?

    IMO, in 10 years Apple will make 5x more than the purchase price of Beats.


    not to mention it costs Apple $14 to make a $200 pair of headphones...and soon will be all Bluetooth 
  • Reply 7 of 40
    thewhitefalconthewhitefalcon Posts: 4,453member
    To this day I still see very little evidence that spending $3B on Beats was worth it. If there is any increase in the "other" line on Apple's financials it's due to Watch, not Beats headphones. And it sure seems there was/is a definite culture clash Iovine and the Beats team in LA and Apple employees in Cupertino. Was it not possible to get a streaming service off the ground without Jimmy Iovine? I find that hard to believe. Unless Eddy Cue isn't the master deal maker he's made out to be.
    I wish the fighting had led to Cue's departure. He's the real weak link in the e-suite. 
    carthusia1983lord amhran
  • Reply 8 of 40
    rogifan_newrogifan_new Posts: 3,823member
    To this day I still see very little evidence that spending $3B on Beats was worth it. If there is any increase in the "other" line on Apple's financials it's due to Watch, not Beats headphones. And it sure seems there was/is a definite culture clash Iovine and the Beats team in LA and Apple employees in Cupertino. Was it not possible to get a streaming service off the ground without Jimmy Iovine? I find that hard to believe. Unless Eddy Cue isn't the master deal maker he's made out to be.
    I wish the fighting had led to Cue's departure. He's the real weak link in the e-suite. 
    It sure seem like it. If Apple is really serious about "services" I don't think he's the guy to lead it. I just hope we don't get another 40 minutes of Cue embarrassing himself on stage demoing a music app.
    1983lord amhran
  • Reply 9 of 40
    levilevi Posts: 344member
    $3 billion? Still view this as a ridiculous acquisition.
    Assuming all 13 million subscribers pay $10/month Apple Music (built on the Beats platform) is generating $1.6B in revenue annually - which alone would probably justify the price. For comparison Apple Music has a little less than half the subscribers of Spotify which is valued at $8-9 B. Further Apple sells a lot Beats hardware which at a high margin. Beats hardware alone is arguably a several hundred million to billon dollar business. $3B by most metrics is a reasonable price.
  • Reply 10 of 40
    levilevi Posts: 344member
    Let's all be honest here. In Apple's mind it does nothing wrong. Everything is intentional. I am sure they put a positive spin on the suicide last week as well. In John Ive voice: "That was not a suicide, it was like a caterpillar spinning a cocoon and transforming into a beautiful butterfly". I really don't like the above all tone of this company at the moment.
    I don't like the tone... - says the person that made the off color joke about an employee suicide 
    caliai46pacificfilmpalominecornchip
  • Reply 11 of 40
    isteelersisteelers Posts: 738member
    Let's all be honest here. In Apple's mind it does nothing wrong. Everything is intentional. I am sure they put a positive spin on the suicide last week as well. In John Ive voice: "That was not a suicide, it was like a caterpillar spinning a cocoon and transforming into a beautiful butterfly". I really don't like the above all tone of this company at the moment.
    There is nothing wrong with Apple. The same politics happen at every large corporation in the world, it just gets magnified due to Apple's popularity. How many other CEOs and design heads do you know by name?  There is always room for improvements but Apple is doing just fine. Their profits and customer satisfaction rates are proof of that.  This is no big deal. 
    caliai46pacificfilmcornchip
  • Reply 12 of 40
    brucemcbrucemc Posts: 1,519member
    Unfortunately no one on this forum as any access to the internal management measurements to know if it was worth $3B or not.  While it is a very large purchase for Apple, it is small compared to their cash and value.  

    If it was instrumental in launching Apple Music when it did, which by most measures appears to be successful, then that partially justifies the acquisition
    If the existing hardware division was profitable and growing, given its >$1B revenue, then it partially justifies the acquisition with greater Apple distribution
    If Apple & Beats together can expand that Beats HW line further, with perhaps increased focus on quality / new Apple tech & processes / new categories, then it further justifies acquisition.

    Nothing that is public indicates it was a bad purchase, financially.
    caliRayz2016
  • Reply 13 of 40
    mj webmj web Posts: 918member
    Wow, that's the first time I've seen Jimmy Iovine's name dropped on AI since he double-talked Tim Cook into overpaying for Beats. What did Apple expect when it mixed inner city rap impresarios with Silicon Valley wire-heads? Harmony and a good fit? Was the bad fit and disharmony really "intentional" or is that Apple's 20-20 hindsight PR spin? I bought every product Apple released until Beats. I didn't even try the "free" trial of Apple Music, which wreaked havoc with many users music libraries. It apparently wasn't very good out of the gate so now it's being relaunched. BTW, did anyone see that Pandora millennial commercial? Very poignant.
    edited May 2016 roger wade
  • Reply 14 of 40
    sandorsandor Posts: 505member
    I just find Jimmy Iovine to be a dud of a person.
    He seems to fit in to the current attention-span deficit culture while maintaining the behind-the-scenes oligarchy common in the tv/music/film industries.
    Rather than Thinking Different(ly), he seems to epitomize the entrenched stereotype.
    roger wade
  • Reply 15 of 40
    irelandireland Posts: 17,547member
    They need to release a Beats Pill+ XL. I know a relation who's in the market for such a product. Personally I think the Pill+ should be rebranded 'Pill' and a new larger one should be named Pill+
    edited May 2016 cali
  • Reply 16 of 40
    irelandireland Posts: 17,547member
    NY1822 said:
    Do you write for or own this website? Regardless, why the comment 'very dramatic article' when the article is not very dramatic? Don't spam the forum.
    gatorguycali
  • Reply 17 of 40
    irelandireland Posts: 17,547member
    To this day I still see very little evidence that spending $3B on Beats was worth it. If there is any increase in the "other" line on Apple's financials it's due to Watch, not Beats headphones.

    this comment form bug is killing me

    Ireland said:

    I disagree. I think it was a good purchase. It allows Apple to play in the sandbox of creating new audio accessories without fiddling with the Apple brand too much. And the Beats brand suits music wearables and speakers better.

    It's 24 days worth of Apple profit; not a major investment from Apple's POV and it allowed them to get buy a lot of talent in the music world that understood the steaming business somewhat.

    As to the culture clash, as an outsider it's tricky to know what's actually going on there, really.

    And from a pure monetary POV I see them getting that money back easily with ownership of the most popular and profitable headphone brand. I think it could have been a far worse 1.0 release. It happened pretty quick and allows them now to iterate.

    My one contention is Apple should have learned from Ping and Connect should have instead being an automatic filter-able Twitter stream of the artists from users music collection or something. Other than something simple like this it should probably not exist.
    edited May 2016
  • Reply 18 of 40
    calicali Posts: 3,495member
    To this day I still see very little evidence that spending $3B on Beats was worth it. If there is any increase in the "other" line on Apple's financials it's due to Watch, not Beats headphones. And it sure seems there was/is a definite culture clash Iovine and the Beats team in LA and Apple employees in Cupertino. Was it not possible to get a streaming service off the ground without Jimmy Iovine? I find that hard to believe. Unless Eddy Cue isn't the master deal maker he's made out to be.
    Thought you were done crying about the Beats deal months ago.

    Yeah, if the Other category makes any money it's due only to Apple Watch not Beats, ever. /s
    Beats hardware alone makes over a $1Billion a year. Heck, one year they made over a billion with $0 in advertising. If that isn't valuable or worth $3 billion then nothing ever will be to the anti-Beats critics.
    Heck, I can't help but grin when someone wearing Beats headphones pulls out an android.

    Apple could have built a streaming service on their own but Iovine IS the master deal maker. It surprises me how many people don't know who he is on tech sites.
    You always complain that Eddy Cue has too much on his plate and it affects quality but suggest he make all the deals at Apple Music too?
  • Reply 19 of 40
    Eric_WVGGEric_WVGG Posts: 541member
    sog35 said:
    To this day I still see very little evidence that spending $3B on Beats was worth it. If there is any increase in the "other" line on Apple's financials it's due to Watch, not Beats headphones. And it sure seems there was/is a definite culture clash Iovine and the Beats team in LA and Apple employees in Cupertino. Was it not possible to get a streaming service off the ground without Jimmy Iovine? I find that hard to believe. Unless Eddy Cue isn't the master deal maker he's made out to be.
    It would have taken at least a year for Apple to build out a streaming business themself. Buying Beats was a good decision.

    13 million subs x $120 a year  = $1.5 billion in revenue
    This. The album market and the pay-per-track markets are dead or dying. The only way Apple could stay in the game is with a streaming service, and simply buying one (and technically the best, if not most popular, IMHO) was a far better strategy than sinking developer resources into another Ping-style pit. 

    iTunes has also been a hub of music “mindshare” for the entire iPod-era. Beats bought the company a new lease on that slice of pop culture relevance. 

    Here’s hoping that Apple Music UI overhaul is successful. Spotify is trash, just a retread of iTunes before iTunes went to hell, but I got a look at the Tidal desktop client the other day and was a little shocked by how good it is. Who knew?

    P.S. I'm betting heavy that iTunes will be replaced with a new Apple Music app in OS X 10.12. The new pattern established with Maps, Photos and Notifications is “big new apps in iOS first, OS X one year later.”
  • Reply 20 of 40
    rogifan_newrogifan_new Posts: 3,823member
    cali said:
    To this day I still see very little evidence that spending $3B on Beats was worth it. If there is any increase in the "other" line on Apple's financials it's due to Watch, not Beats headphones. And it sure seems there was/is a definite culture clash Iovine and the Beats team in LA and Apple employees in Cupertino. Was it not possible to get a streaming service off the ground without Jimmy Iovine? I find that hard to believe. Unless Eddy Cue isn't the master deal maker he's made out to be.
    Thought you were done crying about the Beats deal months ago.

    Yeah, if the Other category makes any money it's due only to Apple Watch not Beats, ever. /s
    Beats hardware alone makes over a $1Billion a year. Heck, one year they made over a billion with $0 in advertising. If that isn't valuable or worth $3 billion then nothing ever will be to the anti-Beats critics.
    Heck, I can't help but grin when someone wearing Beats headphones pulls out an android.

    Apple could have built a streaming service on their own but Iovine IS the master deal maker. It surprises me how many people don't know who he is on tech sites.
    You always complain that Eddy Cue has too much on his plate and it affects quality but suggest he make all the deals at Apple Music too?
    Hey I'm just going by Apple's earnings call where Luca said the increase in "other" category was over 100% Watch. That means iPod, Beats and accessories are down sales wise. Notice too that Apple rarely talks about Beats headphones and rarely features them on the front page of apple.com.
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