Apple & Beats Story: Does Apple Truly Own Beats?

Beats by Dre headphones quickly became a massive success story, decorating the heads of celebrities and eventually being bought by Apple.

In this article, you’ll learn:

• How Beats came into existence and why it was so successful
• Why Apple bought Beats for an insane $3.2 billion
• What’s the likeliest future for the Beats brand

History of Beats

Beats brand started with the idea that portable headphones, specifically Apple EarPods, don’t have to sound thin and bland. But instead, can sound and look good as well

That is why Dr. Dre (real name Andre Young), a famous hip-hop artist, and Jimmy Iovine, an audio engineer and a successful producer in the music industry, founded Beats Electronics company in 2006.

Jimmy Iovine stated in 2006 that: “Apple sells $400 iPods with $1 earbuds.” Even Dr. Dre was upset that his work was getting “destroyed” by listening with low-quality headphones.

In 2007, Beats partnered with Monster Cable, which could mass-produce headphones. Working together, they released Monster Beats by Dr. Dre Studio headphones in 2008, the Beats headphones that started it all.

Early success and growth of the brand

Luckily, right before the Beijing Olympics 2008, Jimmy Iovine was working on a documentary with LeBron James. LeBron later asked Jimmy for 12 headphones for him and his teammates.

As it later turned out, handing headphones to sports and music celebrities was the best marketing idea and a massive opportunity for Beats.

Their headphones quickly became desirable among a larger population, having around 53% of the market share by the end of 2011.

Also, in 2011, HTC bought 50.1% of the company for $309 million, gaining the rights to brand their products, like smartphones, with a Beats logo. Soon later, Beats would buy back 25% of the share from HTC, regaining control of the company.

Moving forward to 2012, Beats acquired MOG, a music streaming service, for a mere $14 million. In 2014, they rebranded it into highly successful Beats Music, offering higher sound quality streaming (compared to Spotify) and introducing music suggestions based on a listener’s taste.

All the success caught the attention of investors, investing in the company and dramatically raising its market value.

Major lawsuits against Beats

After the Beats success, it faced quite a few lawsuits.

• 2014. After releasing Beats by Dre Executive in 2013, their first active noise-cancelling headphones, Bose found that the company was infringing five of their ANC tech patents. Beats later settled with Bose for an unknown amount.
• 2014. Beats founders were sued by Steven Lamar, who helped design the first Beats headphones, claiming he was also owed compensation from sales of other Beats headphones. At first, Lamar demanded $100 million, but after 4 years of legal battles, the judge concluded that he would receive $25 million.
• 2015. Remember the HTC? Well, to Monster, that whole buyout was suspicious. Based on their contract with Monster Cable, if anyone buys more than half of the company, Beats can end their licensing agreement with Monster. They later sued Beats but unsuccessfully since the judge saw nothing wrong with HTC’s supposed aid in breaching the contract.

Apple Buys Beats

Apple came into the story in 2014, shortly after Beats launched their Music app, and had a 27% of the overall and 57% of the premium headphone market share (headphones costing more than $100).

Acquisition of Beats by Apple

Possibly seeing Beats as a threat in the premium headphone and music streaming market, Apple decided to quickly acquire it for $3.2 billion and turn it into an opportunity.

A few months later, Apple turned Beats Music into Apple Music and released the iPhone 7, the first one without a headphone jack, which skyrocketed the sales of wireless Beats products (and Apple AirPods).

Does Apple Own Beats?

In 2014’s Beats acquisition, Apple bought 100% of the company, the entire headphones division, and the Beats Music service. That’s how it gained complete control over its main competitor in the audio world.

As mentioned, Apple released AirPods, its first true wireless earbuds that operated using an H1 chip, which ensured better integration with Apple devices (faster pairing, seamless multipoint device switching, ANC processing (in AirPods Pro model), etc.).

Therefore, to lure people into getting an Apple device after buying new Beats headphones, they started putting H1 and W1 chips into them, as well.

The first Beats headphones sporting the Apple W1 chip were Solo3 Wireless and PowerBeats3, released in 2016. Beats Solo Pro, released in 2019, were the first to have the H1 chip. The last vastly popular ones were Beats PowerBeats Pro.

That said, unlike Apple headphones, Beats remained Android-friendly, offering an app to access all the features.

The financial impact of the acquisition

While Apple’s acquisition of Beats was the largest Apple has ever done, it made total sense. Beats had a massive headphone market share and the music streaming app that could further disrupt Apple’s plans.

Buying out the competition is nothing new in the business world, and by doing that, Apple bought itself some peace. With two popular brands combined, they were stronger than ever.

The buy-off started paying off after just a few years (or even sooner). Beats and Apple headphones sold really well, with AirPods overtaking the wireless market.

Furthermore, Apple Music quickly gained a large number of users, especially in the US. It didn’t overtake Spotify, but nonetheless, it can thank its initial success to the Beats.

Under Apple’s control, Beats’ design became sleeker, and the sound slightly more balanced. Though the Apple-branded products are more balanced for the two brands to differentiate. Beats headphones still have a recognizable bass-heavy sound.

The Role of Dr. Dre in Beats

Dr. Dre’s (or, more accurately, his lawyer’s) initial idea for the Beats brand was to make sneakers (shoes). However, there were 2 other things stuck in Andre’s head at the time:

• He didn’t like the idea of piracy and people stealing his work, so he wanted to find a solution.
• He disliked that people were “butchering” his work by listening to his music with crappy headphones.

He later presented solutions to both of these problems:

• First, with the launch of Beats Music in 2014.
• Secondly, by deciding to create headphones that would genuinely reproduce how his music should sound.

Changes in ownership and Dr. Dre’s stake in Beats

After the acquisition, Dr. Dre and Jimmy Iovine got hired by Apple in an executive team. They were primarily involved in working with Apple Music and improving its functionalities.

However, in 2018, Jimmy stepped down from his position at Apple Music. He moved to a consulting role at Apple.

It’s unknown whether Dr. Dre still holds an executive role at Apple Music. It could be that after some personal drama, lawsuits, and eventual ditching of the biographic show that Dr. Dre was making exclusively for Apple, he started distancing from the company.

Production: Who Makes Beats Headphones?

The first company to produce Beats headphones was Monster Cables, making them from 2008 to 2011.

After Apple’s acquisition, headphone manufacturing was relocated to factories that make Apple devices. The most famous one is Foxconn, which has factories in multiple countries.

Currently, Beats headphones are being made in China, Vietnam, and India, similar to iPhones and AirPods.

The reason for branching is to avoid disruptions in production for various reasons (supply shortage, zero-COVID policies, etc.).

As for quality control, despite Beats premium prices (their first headphones cost an eye-watering $350, which is today’s equivalent of $496), they were never a synonym for high build quality.

Beats headphones were often considered plasticky, with few metal parts at the folding hinges. Ear pads were also on the shallow side, so there was no premium treatment there, either.

No wonder many Beats users complained about the build, stating that many times something chipped off or broke.

That said, Apple has higher standards for products associated with their brand, so most newer Beats products came with a sleeker design and improved build materials (Beats Solo Pro were a great example, but Apple discontinued them for some unknown reason).

Consumer Perception and Market Impact

At some point, Beats had around 57% of the premium consumer headphones market share in the US in 2014. While many thought Apple buying Beats would help its headphones to succeed even further, that wasn’t the case.

Even in 2015, it was obvious that Apple wanted Beats Music and not their headphones. Pushing greater focus on AirPods, Beats quickly started to lose its market.

In 2021, Beats had only a 15.3% share in the US, whereas Apple had 34.4%, according to Statista.

Still, Beats hasn’t said its last word. It has recently released Beats Studio Buds +, a refreshed version with better ANC and connectivity with both iOS and Android.

Android compatibility is something all users can appreciate, as AirPods typically block many of their features from non-iOS users.

Beats and AirPods are also two different breeds of headphones. Beats are more sports-oriented, with a bit more exciting sound, whereas AirPods stick to a balanced/neutral sound signature.

However, it wouldn’t be a surprise if Apple slowly fades the Beats brand away in favor of its AirPods.

Frequently Asked Questions (FAQ)

Conclusion

In a sense, Dr. Dre and Iovine created a fashion statement rather than bringing high-quality audio to the masses. It was their genius marketing campaign that made them desirable, not their sound.

While their legacy remains, AirPods have taken the lead as the most popular headphones, despite having a completely different sonic signature.

Do you like their headphones? Do you own one? What do you think will be Beats’ future? Please, let us know in the comments.

Peter Susic

From a childhood fascination with sound, Peter’s passion has evolved into a relentless pursuit of the finest headphones. He’s an audio expert with over 5 years of experience in testing both audiophile and consumer-grade headphones. Quote: “After many years, I can confidently tell which headphones are good and which are terrible.” Find his honest opinion in his reviews.