With two of the five business days this week already over and done with, and no word from Apple about its rumored $3.2 billion deal to buy Beats Audio, is it possible that Tim Cook is having second thoughts about the deal? The speculation late last week said that Apple would announce its largest acquisition ever during this week, and there was that video selfie taken by Dr. Dre that seemed to confirm the transaction. Is there anything that has changed recently, new information perhaps, that would make Apple slow down announcing the transaction?
During this week, there was talk that Apple’s main reason for buying Beats Audio is to pick up streaming music app Beats Music to help iTunes Radio improve. The latter service is only converting 1% to 2% of its users into paid subscribers, something that Apple wants to improve on. Apparently, Apple feels that it needs to learn from Beats Music, how to run a streaming music service.
But a new leak on Tuesday suggests that Beats Music is not doing nearly as well as thought. According to a document that shows Beat’s royalty payments, Beats Music has just shy of 111,000 subscribers. That means Apple would be paying approximately $28,000 per subscriber. If Beats has gone through its marketing budget of $40 million, it would mean that customer acquisition costs, at $360 per subscriber, are through the roof. Beats rival Spotify has 6 million members, although it does have a head start. A year after its U.S.launch, Spotify had 1 million subscribers,
Even more embarrassing for Beats Music is the paltry sum it is paying artists for the music it streams to listeners. In March, Beats paid only $22,000 in royalties to artists. That works out to the anemic price of $0.000126 paid to the artist each time his or her tune is played on Beats Music. The record labels are getting $0.00136 per play, resulting in a figure of $250,000 paid to them in March. But this could be skewed by the three months of free service that AT&T offered its customers as a marketing promotion
The bottom line though, is whether Apple might actually learn something about improving iTunes Radio by making this purchase. That is the unsaid rationale for making the buy. Remember, at $3.2 billion this would be Apple’s largest acquisition ever and could backfire if the deal is made and it turns out that Beats needed Apple more than Apple needed Beats.