Apple Beats deal capitalizes on a changing music industry

Apple's $3 billion deal to buy Beats Music comes at a time of difficult change for the music industry, according to Beats co-founder Jimmy Iovine. In addition to Beats headphones, the company's streaming subscription service was a major factor in the purchase. 

By , CNBC

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    Beats Audio equipment is arranged for a photo next to an Apple laptop at Best Buy in Boston. Apple announced Wednesday, May 28, 2014, that it is acquiring Beats Electronics for $3 billion. Beats, the headphone and music streaming specialist, also brings the swagger of rapper Dr. Dre and recording impresario Jimmy Iovine.
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Apple buying Beats is about creating new musical experiences and better quality sound at a time of wrenching and difficult change in the music industry, said Eddy Cue, SVP at Apple, and Beats co-founder Jimmy Iovine.

"We don't know the exact model, but Apple is best company to help us with this," said lovine, who became an employee of Apple with the deal.

"Music is dying as we know it," Cue said.

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Their comments were part of a discussion Wednesday at the tech-centric Code Conference in southern California.

The current emerging model of free or inexpensive streaming services is too costly to survive on its own without the backing of outside capital, said lovine. When that capital goes away, that model will collapse.

In striving for new business models, lovine said that the traditional cultural differences between musicians and techies will enable Beats and Apple to compliment each other's strengths.

For example, people in entertainment are generally insecure, while tech-types tend to be "overconfident"; also, most tech companies are culturally inept, while most record companies are technically inept.

Iovine said that Apple is committed to making high-quality products at a time when music sound quality is generally degraded. Iovine did get in what was likely an accidental dig at the sound quality of Apple's earbuds. "They make a phone! It's not their responsibility to make the headphone," he said.

Cue said that Beats' subscription service was part of the reason for the purchase, but added that music downloads from iTunes were healthier than is often understood.

This panel was the only one that audience questions were not allowed, due to objections from the company's lawyers concerning the Beats acquisition.

Disclosure: NBCNews group is a minority stakeholder in Re/code and has a content sharing partnership with it.

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