How Beats By Dre Became A Multibillion-Dollar Brand

this is a pair of $59,000 headphones they're known as the H e ones by Sennheiser and they are the most expensive headphones in the world but these are beats by dre hello what up Dre few brands have risen to the top of American pop culture as quickly or as thoroughly as beats did in the late 2000s Beats By Dre had a novel idea use the principle of hype culture to sell headphones that strategy turned over the ear headphones from a niche product to a cultural phenomenon here's how beats leverage the strategies of sneaker culture to become one of the most recognizable brands in the world this is suddenly obsessed before the Sony Walkman debuted in 1979 headphones were mainly a utility used by the military and professional sound engineers and that's pretty much where consumer headphone technology stayed until October 23rd 2001 and we are introducing a product today called iPod you can take your whole music library with you right in your pocket now to be fair there were other mp3 players on the market at the time but the $399 classic iPod and those white earbuds became a sort of status symbol people had these white headphones everywhere it was on the sides of buses and subway stations on TV commercials and sort of everybody needed these white headphones that showed you had an iPod sales took off but audio files were unimpressed the base was non-existent the mid-range was muddled they let in a lot of outside noise and they were uncomfortable to wear it seemed Apple and its competitors were more focused on the functionality of the mp3 player rather than the sound quality of the earbuds creating an opportunity for a higher quality headphone everything suddenly came with cheap headphones and they said oh we'll just make headphones a part of every piece of technology and what happened was the audio experience went like this but what was great about the world of digital recording is we were just doing more more interesting things in the studio but the sound was getting tiny in October 2003 Interscope co-founder Jimmy Iovine reached out to Luke wood the chief strategy officer at Interscope Geffen A&M I even wanted to discuss the state of the music industry would made a name for himself throughout the industry working with famous bands like Nirvana Weezer and the Yaya's but still he admits he was intimidated to talk one-on-one with Iovine I was pretty much terrified as an understatement because I love my job I had the greatest job in the world I made rock records for a living and I was like oh here's the biggest guy in hip-hop now yeah he made Patti Smith and he worked with Bruce Springsteen and John Lennon but now he's pretty much known as the hip hop guy and I don't know he's gonna have any time for me I evene was interested in Woods take on music piracy instead they got into a discussion about music production headphones never came up first thing he says play me the records you're working on I played him a record got to the to basically the bridge of the song and he immediately pinpointed the problem was super technical in that conversation towards the end of that breakfast he started saying what are we gonna do about piracy how are we gonna fix the business and you know he found a kindred spirit of myself as all another entrepreneur like how do we take this on how do we go after it in 2006 I've been called one and told him that he and dr. Dre were building a headphone company that one seemed super absurd to me because I wasn't afraid to go do jeans or sunglasses or something interesting like that because that's like a new space and you know we can find people with who are experts but suddenly if we're doing something audio that's what we did we had to pull that out of ourselves beats by dre was born would says there were two key issues the company was solving for the lost revenue from digital music in the poor sound quality from the headphones that were out at the time beats partnered with monster Inc to develop its first pair of headphones on July 25th 2008 beats by dre dropped the monster beats which carried a price tag of three hundred and fifty dollars we had no idea how big the opportunity was but what we knew was the headphone space pretty much have been treated like stuff that sold at Office Depot grey solving a utilitarian problem that made no sense because the headphone was like an Air Jordan it wasn't a stapler so for us it was like how do we bring fashion design iconography energy and then underneath that bring sounded and innovation that was the opportunity and so beats would launch different colors for sports teams or different sizes and things that attracted people to not headphones but the actual look of the headphones themselves it was itself a fashion accessory whether they sounded good or not celebrities and athletes were clamoring to get their hands on a pair but would points to one specific moment in Beats history that made the over-the-ear headphones go viral we had this amazing thing happened in 2008 around the Beijing Olympics LeBron James was in Jimmy Iovine office there working on a documentary and he casually mentions he and his manager maverick Carter that they're gonna go to Beijing could he get a pair of headphones and then LeBron says can I get 12 to give out to the team we gave him 12 headphones that seems small now but four beats that was iconic just like the latest pair of Air Jordans everybody wanted them often we basically say that these are sneakers on your head and that's kind of how we looked at it cuz sneakers are so much about identity we have the other piece of it in that we really want to bring in great technology and innovation it's that thing that says to the world who are you part of what community are you part of who do you want to be who's your tribe that's what a headphone can be as beats grew in popularity more and more celebrities started attaching themselves to the brand you'd see them during warm-ups at NFL games and ba games and before tennis matches in February 2011 Iovine and Dre officially named would president and CEO of Beats in August of that year Beats inked a 309 million dollar deal with HTC for a 50 point one percent stake in the company granting HTC exclusive rights to manufacture smart phones with Beats branded audio beats would later buy back its shares Beach released their first bluetooth headphones in October 2011 called the beats by dre Wireless priced at $279.95 by the end of 2011 Beats had a 53% market share but even with mixed reviews sales continued to rise I think Beats was able to charge a lot because they wanted to market it as a premium product that people had to pay for whether the technology was there or not in some cases it was I know producers did like beats their high-end versions but the ones consumers were buying we're often pretty similar to what you could buy for a lot less just without the beats logo in July 2012 beats acquired emoji music service for 14 million dollars that same year in October beats unveiled its first pair of active noise-cancelling headphones the Beats executives Beats uses to noise canceling technologies passive noise isolation which essentially blocks ambient sound through physical barriers like extra padding around the ear cup an active noise cancellation which reduces ambient sounds digitally microphones located inside and outside of the headphones gauged the amount of ambient sound around you and play a specific frequency level to cancel out the noise pollution other companies like Bose Sony and Panasonic offered comparable technology at a similar price point the beats had one thing they didn't well - dr. Dre and Jimmy Iovine the buzz generated by a string of successes caught the attention of investors in September 2013 beech received a 500 million dollar investment from the Carlyle Group bringing its value to a reported 1 billion dollars a number it would triple in less than a year do you have a pair I don't we have that's great in January 2014 beats launched a streaming service called beats music which posted better sound quality than Spotify and other streaming services it offered music recommendations based on users listening habits as a result emoji was shut down later that year by March 2014 beats had reported 57% of the quote premium headphone market Apple is in talks to buy the headphone maker Beats Electronics and that would be Apple's biggest acquisition but moments before the official announcement dr. Dre and Tyrese Gibson went on Facebook to prematurely spread the news the stunt did not go over well nevertheless on August 1st 2014 Apple acquired Beats Electronics and beats music for three billion dollars they basically own this market and so Apple is buying on trade now is Jimmy Iovine gonna be great for the streaming side is dr. Dre's endorsement gonna help is it about the music business solely or is this a toe tip into fashion apparel industry and you I know that sounds crazy people wear these as a fashion statement this is about getting into the streaming music market three months later Apple folded beat streaming service into Apple music however Apple's release at the iPhone 7 2006 teen might have unwittingly helped beat him an even larger share of the headphone market the theorists arguing that this headphone jack removal is not just to make the phone thinner but also to create an environment in which beats wireless headphones really become a much larger part of the equation I mean this is that whole that Apple's getting smarter about taking advantage of its ecosystem to make a profit that's same months each released the solo through Wireless and power beats 3 which used Apple's w1 chip allowing their headphones to immediately pair with an iPhone and extend its battery life this marked the first time Beats incorporated Apple's tech into its product design in September 2017 beats released the studio 3 line and in October 2009 teen it released the solo Pro which used Apple's h1 chip but as Beats grew it began facing a string of lawsuits in 2014 the company was sued by the Bose Corporation the case was settled out of court for an undisclosed sum of money in January of 2015 monster Inc sued beats saying it fraudulently ended its relationship with the company but the case was dismissed and in 2018 a jury awarded former hedge fund executive Steven Lamar twenty five point two five million dollars for his involvement in the design of the headphones now Beats is facing a more fundamental problem changing consumer preferences when Apple got rid of the 3.5 millimeter headphone jack with the release of the iPhone 7 it was laying the groundwork for a new line of Bluetooth high fidelity earbuds the air pods these are a little maybe wireless earphones that are basically the size of a cufflink they will operate through a wireless chip and they will have to be charged separately Apple's going to provide a charger but you're gonna have to pay for them they'll cost about a hundred and fifty nine dollars this is Apple's second foray into wearables this is a winner here the pods are a runaway success and we're making as just as fast as we can in 2018 the air pods were apple's most popular accessory with 35 million units sold in 2019 that number ballooned to nearly 60 million equal to about 6 billion dollars in revenue Apple has since released an even more expensive version called the air pods Pro and is to release additional versions later in 2020 Apple's current lock in the Air Bud market is putting beats in unfamiliar territory playing catch-up in May 2009 teen beach released a high-end line of in-ear Tru wireless earbuds called power beats Pro to directly compete with the air pods but it may be too little too late analysts estimated air paws made up 71 percent of the global wireless headphone market in 2019 even more concerning for beads Apple is expected to release a pair of over-the-ear headphones during rumors that the company could kill off the beats brand entirely and legacy brands like sure and Sennheiser are also looking to take advantage of the recent surge in popularity of over the ear headphones for us it is absolutely about audio and our challenge is what else how else can we build up durability is a big one meaning I ought to be able to throw this headphone in a backpack and not worry it's going to break same thing with an earphone Sennheiser has been around for 75 years so in order to remain relevant we really focus on the customer who understands audio and wants more than just noise the impact beats had in pop culture is undeniable in eight years dre Iovine and wood but one of the most recognizable brands in the world but even with its massive success and popularity the future of Beats remains uncertain I don't think the Beats legacy has personally been written yet because as long as people are making music we have a right and responsibility and opportunity to create a playback device to automate music music has been around for thousands of years and the more and more you feel disconnected from the world the more you want to connect to something yourself when Apple purchased Beats it didn't just buy the company it bought its cultural cachet but in August 2008 teen Jimmy Iovine stepped down into a consulting role leaving Beats feature with Apple a little less certain he told the Times in December 2019 quote when I went to Apple it was a new creative problem for me how do we make this the future of the music business I ran out of personal red light somebody else will have to do that so the big question remains is there room for two premium headphone brands at Apple only time will tell you

Channel: CNBC Make It

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Id: eRyKBt7bqWU

Length: 13min 23sec (803 seconds)

Published: Tue Apr 21 2020