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Why Apple Would Acquire Beats Electronics for $3.2 Billion?

The Financial Times reports that Apple is offering $3.2 billion USD to acquire Beats Electronics LLC, the audio company founded in 2006 by hip-hop producer Dr. Dre and Interscope-Geffen-A&M Records chairman Jimmy Iovine. Sources claim that the deal is expected to be announced as early as next week, but they also caution that there are still some issues to iron out, and the deal could possibly fall apart.

According to the report, a finalized deal means that Apple will acquire Beats’ just-launched Beats Audio streaming music service, and the company’s audio equipment arm, which includes branded headphones and other audio products. The Beats management team will also report directly to Apple CEO Tim Cook. Apple already sells Beats audio products in its Apple stores.

Rumors of Apple jumping into the streaming subscription business have been around for years, but so far the company is only relying on the sales of its music sold through iTunes. Meanwhile competitors have sprouted up such as Spotify and even Google’s own All-Access on Google Play Music, showing that customers are willing to spend a monthly fee for an all-you-can-eat music buffet. The subscription service market raked in $1.1B in 2013, according to a recent report by the IFPI.

In September 2013, Apple launched iTunes Radio, an ad-supported service available to iTunes customers. Like Pandora, users can skip a limited numbers of tracks, create stations and purchase music from those stations in the iTunes Store. Apple also has an iTunes Match service, which for a monthly fee will match the customer’s non-ITunes library with high-quality audio files. These subscribers can get iTunes Radio without ads.

So far Apple has not launched an unlimited music subscription, which is why the deal with Beats Electronics seems more like a definite deal instead of unnamed sources blowing smoke. HTC originally purchased 50.1 percent of Beats back in August 2011, but sold half of that back to Beats in July 2012, and the other half in September 2013. Beats Audio was then launched in January 2014, a service that HTC originally wanted exclusively to rival other phone manufacturers.

If the talks is true and Apple acquires Beats Electronics, the company will have more control over the accessories it sells in the brick-and-mortar stores not to mention an already-established music subscription service. According to Apple executives, the Apple brand needs a revamp anyway.

Both Apple and Beats have declined to comment.