Apple isn't buying Beats Entertainment for $3.2 billion — what it is really doing is acqui-hiring Jimmy Iovine.
According to a source with direct knowledge of the negotiations, Iovine would leave Universal Music Group, his record label home for more than two decades, to join Apple in an undefined "creative role" as part of a deal for Beats. Iovine, who along with rapper Dr. Dre founded Beats in 2008, is currently the chairman of Universal's Interscope/Geffen/A&M labels. He is among the most powerful and colorful personalities in the industry, frequently seen in vacation pictures on the Twitter feed of fellow music mogul Irving Azoff.
In recent years, Iovine, a lanky figure who often sports a baseball cap, has decreased his involvement at the labels he oversees in favor of more entrepreneurial activities. He was one of the first industry executives to anticipate the download business's decline and advocate for subscription and streaming services as music's future. While Apple has been talking up iTunes in recent earnings calls, in the last one saying that it had brought in $2.6 billion in revenue in the first quarter this year, up 9% from the same quarter a year ago and hitting an all-time record, sales of apps have been the driving force of its growth.
According to the source, Apple is buying Beats in part to bring Iovine on board to "revamp and run its whole music strategy."
A leader in the adoption of digital music via download, Apple has been unable to successfully pivot to the new world of streaming consumption. Its iRadio streaming service launched to much fanfare last year, and then quickly was forgotten about. And its newest iterations of iTunes have been met with complaints about design and recommendation features. Granted, a deal for Beats would improve Apple's functionality in both those areas since Beats's streaming service and recommendation engine are widely considered to be far superior Apple's. But this deal is primarily about Iovine, and what he can bring to Apple.
In terms of persona, Iovine and Apple CEO Tim Cook couldn't be more different. Cook is precise, measured, financially risk averse (except for the Beats deal, apparently), low-key, and soft-spoken. Iovine is none of those things. He is, in fact, almost precisely the opposite. Bred in Brooklyn, Iovine is streetwise, loud, and a creative risk-taker. He is, dare we say it, very much a Jobs-like character.
Iovine is equally at home in the corporate boardroom and in the recording studio, where he has worked with everyone from Bruce Springsteen and U2 to Lady Gaga and Eminem. Throughout his career, his has managed to strike that delicate balance between endearing himself to artists while also making money for his company.
In Fred Goldman's book Fortune's Fool, about Seagram's scion Edgar Bronfman Jr's endeavors in the music industry, he writes of Iovine, "Artists found they couldn't get enough of Iovine's shtick, even if they knew what he might do to their sister — and them— if given half the chance."
In many ways, the Beats deal is the culmination of Iovine's and Apple's long history together. As the Wall Street Journal noted, Jobs sometimes stayed at Iovine's house when visiting Los Angeles, and Iovine is the one who led the deal for Universal to create a U2-branded iPod.
On the surface, Iovine's departure seems like a big loss for Universal Music. But the reality is that he has been taking baby steps away from the industry for years, co-producing Eminem's feature film debut, 8 Mile and the LeBron James documentary More Than a Game, for instance.
And after Lucian Grainge took over for Doug Morris as Universal Music's CEO in 2011, he adopted an unspoken policy of letting Iovine function as a sort of in-house entrepreneur for the label. Grainge even laid the succession plan groundwork with the October 2012 hiring of John Janick from Warner Music's Fueled by Ramen label to be Interscope's president and chief operating officer.
Janick, who relocated to California to work as Iovine's top lieutenant, said at the time of his hiring that, "I've been entrusted to help build this company for the future. It's fantastic to be joining a company that has been built on such exciting artists and music; that's something I intend on continuing."
Now, it appears as though he will officially get his chance — and his label, not to mention the music industry writ large, will finally have in Iovine an ally inside Apple, whose music operations it appears as if he will soon be running.