Beats Electronics LLC (also known as Beats by Dr. Dre, or simply Beats by Dre) is a division of Apple Inc. that produces audio products. Headquartered in Culver City, California, U.S., the company was founded by music producer and rapper Dr. Dre and Interscope Records co-founder Jimmy Iovine. The subsidiary’s product line is primarily focused on headphones and speakers. The company’s original product line was manufactured in partnership with the AV equipment company Monster Cable Products. Following the end of its contract with the company, Beats took further development of its products in-house. In 2014, the company expanded into the online music market with the launch of its subscription-based streaming service, Beats Music. In 2011, NPD Group reported that Beats’ market share was 64% in the U.S. for headphones priced higher than $100, and the brand was valued at US$1 billion in September 2013. For a period, the company was majority-owned by Taiwanese smartphone maker HTC. The company reduced its stake to 25% in 2012, and sold its remaining stake back to the company in 2013. Concurrently, Carlyle Group replaced HTC as a minority shareholder, alongside Dr. Dre and Iovine in late 2013. On August 1, 2014, Apple Inc. acquired Beats for US $3 billion in a cash and stock deal, the largest acquisition in Apple’s history.
The company was formally established in 2006, a time when Iovine perceived two key problems in the music industry: the impact of piracy on music sales and the substandard audio quality provided by Apple’s plastic earbuds. Iovine later recalled that Dre said to him: “Man, it’s one thing that people steal my music. It’s another thing to destroy the feeling of what I’ve worked on.” Iovine sought the opinions of musicians with “great taste”, such as M.I.A., Pharrell Williams, will.i.am, and Gwen Stefani during the early developmental stage. Beats initially partnered with Monster Cable, an audio and video component manufacturer based in Brisbane, California, to manufacture and develop the first Beats-branded products, and debuted its first product, Beats by Dr. Dre Studio headphones, in late 2008. To promote its products, Beats primarily relied on endorsements by pop and hip-hop music performers, including product placement within music videos, and partnering with musicians and other celebrities to develop co-branded products. Beats’ use of endorsements by musicians helped the company aggressively target the young adult demographics.
In August 2010, mobile phone manufacturer HTC acquired a 50.1% majority share in Beats for US$309 million. The purchase was intended to allow HTC to compete with other cellphone makers by associating themselves with the Beats brand, as the purchase also granted HTC exclusive rights to manufacture smartphones with Beats-branded audio systems. Despite its majority acquisition, HTC allowed Beats to operate as an autonomous company. Luke Wood, President of Beats in May 2014, joined the company in January 2010, when the company was a “licensing business”. Wood had previously worked under Iovine at Interscope Records. On January 19, 2012, BusinessWeek reported that Beats and Monster would not renew their production contract and their partnership ceased at the end of 2012. Dre and Iovine subsequently decided to oversee the entire operation of the company, from manufacturing to R&D, and aimed to double its workforce to around 300 employees. Monster would ultimately begin marketing its own competing line of premium headphones aimed towards an older demographic. At the time, neither Dre, Iovine or Wood were experienced in the operation of a company at such a grand level, but Nani Wood explained in 2014: I didn’t have manufacturing experience, but I had experience of building something from scratch … Every time we put out an album, it was basically like building a new business–a unique cast of characters, unique challenges and opportunities, and trying to figure out a unique path to market. In October 2012, Beats unveiled its first two self-developed products, “Beats Executive” headphones and “Beats Pill” wireless speakers—Iovine believed that the company would now have to “control [its] own destiny” in order to continue its growth. Iovine also commented on how other headphone makers had attempted to emulate Beats’ celebrity endorsement business model (including Monster themselves, who unveiled Earth, Wind and Fire and Miles Davis-themed headphones at the 2012 Consumer Electronics Show), stating that “some of our competitors are cheap engineers who have never been to a recording studio. You can’t just stick someone’s name on a headphone that doesn’t know anything about sound.” Following the decision to transform Beats into an autonomous entity, the company’s revenues reached the US$1-billion mark, according to Iovine.