Apple gets injection of music industry muscle

CUPERTINO, Calif. » Apple’s new music impresario, Jimmy Iovine, didn’t start out writing code or studying computer engineering, the usual path of a Silicon Valley mogul. Instead, he began his career sweeping the floors of New York City recording studios and fetching tea for John Lennon.

But Apple is betting that Iovine’s four decades in the trenches of the recording industry, his knack for trend-spotting and his credibility with artists will help the company rejuvenate its music business nearly three years after the death of its co-founder, Steve Jobs.

On Wednesday, after weeks of speculation, Apple said it would pay $3 billion for Beats Electronics, the company that Iovine founded with rap star Dr. Dre that includes the Beats by Dr. Dre headphone line and a fledgling streaming music service.

"We looked at the combination with Beats, and what we saw is a company that has incredible, rare talent," Apple’s chief executive, Tim Cook, said in a joint interview with Iovine and Dr. Dre at the company’s headquarters here.

One of the most powerful figures in the contemporary music industry, Iovine, 61, brings to Apple deep celebrity connections and a devil-may-care attitude that stands in stark contrast to the businesslike manner of Cook.

Iovine’s relationship with Apple dates to the beginnings of iTunes, when he became a friend and crucial advocate for Jobs as he tried to persuade nervous record executives to sell their songs ? la carte.

"Jimmy was one of the first people we showed iTunes to," said Eddy Cue, Apple’s content chief.

As part of the deal, Iovine and Dr. Dre — whose real name is Andre Young — will join Apple in senior positions reporting to Cue, and Iovine will leave his longtime post as chairman of Universal Music’s Interscope Geffen A&M division, where he has guided the careers of U2, Eminem and Lady Gaga.

Formerly married to a Playboy centerfold model, Iovine rivals some of his artists in his celebrity profile around Hollywood; in a bland corporate conference room at Apple on Wednesday, he wore a shiny blue blazer and bright blue high-top sneakers.

Apple’s acquisition of Beats reflects the transformation of the music industry, which has gone from CD sales and downloads to fast-growing streaming services like Pandora, Spotify and YouTube. Many in the recording industry say that Beats Music, the company’s new subscription streaming service, is the real growth engine in Apple’s acquisition.

"To have a kingpin around subscription, and someone who really understands content within Apple, we feel very positive about that," said Lucian Grainge, the chairman of Universal Music. Universal acquired a 14 percent stake in Beats by allowing Iovine to pursue the company, a share that will net the label more than $400 million.

Iovine got his start a studio gofer in the 1970s but quickly made his name as an engineer and producer, working with acts like Bruce Springsteen, Tom Petty and Stevie Nicks.

"My life changed because Bruce Springsteen got on a mic in front of me," Iovine said. "That continued in my life over and over again, so I get the joke now. Artists have to be represented properly and paid properly."

Interscope Records, which Iovine founded in 1990 with the retail heir Ted Field, became the hottest label of the 1990s by betting on the commercial appeal of gangsta rap acts like Dr. Dre and Snoop Doggy Dogg.

"He can see around corners," said Doug Morris, the chairman of Sony Music, who as the head of Warner Music’s Atlantic Group in the 1990s backed Interscope. "It was Jimmy who really believed that rap was going to go mainstream, and it did exactly what he thought."

Now part of the Universal Music Group, Interscope has maintained its success with acts like 50 Cent, U2 and Lady Gaga, buoyed by Iovine’s reputation as a rare corporate executive who understands the creative mindset of his artists.

Iovine is also famously relentless in business. To seal a joint-venture deal, he once called an executive at another label every day at 3 p.m. for a year. Gwen Stefani refers to "Jimmy jail" — the purgatory when Iovine sends his artists back to the studio again and again "to write that last track, that career-changing track," Stefani said in an interview.

As painful as that jail can be, Iovine’s nose for hits is usually right.

"The good news is, he’s Jimmy," Stefani said. "The bad news is, he’s Jimmy."

Iovine described his move to Apple as "the second phase of my music career." But that move began in 2008, when he and Dr. Dre began selling their Beats by Dr. Dre headphones as a response to the cheap white earbuds that Apple gives away with its products. Sold for as much as $450, the sleek, bass-heavy earpieces now represent about 60 percent of high-end headphone sales.

Dr. Dre is said to be closely involved with the design of the headphones that bear his name, but Iovine seems to do most of the talking. In a half-hour joint interview at Apple, Dr. Dre spoke once, saying, "This is the dream."

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"Jimmy figured out that whatever format of music comes along, people are going to need ways to listen to it," said Jon Landau, Springsteen’s manager and a longtime friend of Iovine’s. "He bet into a business in which how the music sells and how much record companies collect is irrelevant."

But with Beats’ push into streaming, Iovine — and now Apple — are making a bet on how consumers will listen to music in the future. Thus far, Beats Music has not posed much of a threat to established players like Spotify. The service, introduced in January, is estimated to have about 200,000 paying subscribers, while Spotify has 10 million.

"Jimmy has time and again proven his ability to understand the tastes of the mass market, in an extraordinary way," said David Pakman, a former digital music executive who is now a partner at venture capital firm Venrock . "But he hasn’t yet proven his ability to get a digital music service off the ground."

Until now, Apple’s moves toward streaming have been tentative. Its iTunes Radio service, meant to compete against Pandora, has found minimal traction in the market. Yet streaming has become the music industry’s next big hope as download sales begin to plunge after a decade of growth.

Iovine, Cook and Cue all described subscription as a critical part of Apple’s future, although they were careful to say that downloads remain important, too. As part of the deal, the Beats brand and music service will continue on its own, for now.

But Wednesday, Iovine was, as ever, the consummate promoter, hyping the Apple and Beats combination as a perfect union of technology, style and business know-how.

"You go into any recording studio in the world and you see candles, lights and that Apple light from a Mac," Iovine said. "Apple is a company that understands music. They are culturally adept; most technology companies are culturally inept."