How Dr Dre could become hip-hop’s first billionaire

Dr Dre with his Beats headphones

When Apple boss Tim Cook said recently that the company “was on the prowl” for acquisitions, few expected he was readying a $3.2bn bid for Beats Electronics – the headphones and music-streaming service started by industry impresario Jimmy Iovine and the hip-hop superstar Dr Dre, says the FT.

There’s much speculation about whether this is a wise move on Apple’s part (see below), and neither company has yet confirmed the deal. But a YouTube video of Dr Dre celebrating with friends and calling himself “the first hip-hop billionaire” was all the confirmation many needed.

In terms of swagger, Dr Dre’s announcement was classic hip-hop. And also somewhat out of character, says The Observer. Dre isn’t the “hyperbolic” type. He rarely courts the press and, compared to Jay-Z or Kanye West, “barely qualifies as a celebrity”.

Yet, when it comes to commercial clout, artistic influence and longevity, few can rival him. Having popularised gangsta rap and launched the careers of Eminem, Snoop Dogg and 50 Cent, Dre doesn’t need to big himself up – others are happy to do it for him.

“Do hip-hop producers hold Dr Dre in high esteem? It’s like asking a Christian if he believes Christ died for his sins,” wrote Kanye West in Rolling Stone.

Born Andre Romelle Young, in the troubled Los Angeles suburb of Compton, the two main drivers of Dre’s life were fashioned in infancy. “I’ve been listening to music as long as I can remember. I have a picture of me wearing a onesie and putting a needle to a turntable,” he told Esquire.

“My mother got pregnant with me at the age of 15. This was 1964 and unheard of at that time. She was told, ‘you won’t be shit – and your kid won’t be shit’. Everyone was trying to convince her to get an abortion. She wouldn’t. So it was always embedded in my head as a child that I have to be a success, because those people can’t be right.”

Dre was steered by his family away from drugs and gangs. “I think my thing was, if you ain’t gonna make no money out of it, don’t do it,” he later explained. In fact, he dropped out of school to become a club DJ, because it paid so well.

His big break was the formation of Niggaz With Attitude (NWA) in 1988, with Ice Cube and others, says The Observer. They didn’t invent gangsta, but they came to define it – earning a warning from the FBI and the honorific title of The World’s Most Dangerous Group.

Dre certainly had a vicious temper – he was arrested for various offences in his 20s – but his formidable work ethic seems to have forged a more mellow outlook, despite the hiatus of his son’s death from a drug overdose in 2008.

Happier behind the console than in front of the mic, he would like to be seen as “a producer’s producer” – but has little interest in the records once they’re made. “Once it comes out, for me, it’s just business. Numbers.” Right now the numbers are looking very good indeed.

Why would Apple pay so much for ‘urban cool’?

Dr Dre and Jimmy Iovine have been friends ever since they met up as record producers nearly a quarter of a century ago. They came up with idea of Beats in 2006, in response to the appalling quality of Apple’s own earplugs, says Burt Helm in Inc magazine.

“Apple was selling $400 iPods with $1 earbuds,” recalls Iovine. “Dre told me, ‘man, it’s one thing that people steal my music. It’s another thing to destroy the feeling of what I’ve worked on’.” They launched the company in 2008 – aiming to market the product “just like it was Tupac or U2 or Guns N’ Roses”.

Critics carped about the hefty $200 price-tag. “We got dumped on by audiophiles on Day One,” says Iovine. They hated the uneven quality and walloping bass, but “we wanted to recreate the sound of the studio”.

The formula certainly worked. Driven by celebrity endorsements and product placements, Beats has enjoyed “phenomenal success”, says Dorian Lynskey in The Observer. It has 65% of the premium headphone market and made around $1.2bn in revenues last year.

In January, the company added a second string to its bow with the launch of a music-streaming service. If Apple does buy the outfit, says Tim Bradshaw in the FT, it will get more than just a set of headphones and a music app. Beats also brings valuable “urban cool” marketing savvy.

Apple is hardly short of cash, but $3.2bn is a lot to pay for that, says Stephen Russolillo on WSJ.com. This deal – the largest in Apple’s history – has left many analysts scratching their heads. As Piper Jaffray notes: “Apple has never before acquired a brand for a brand’s sake.”

The main rationale, surely, is Beats’ music-streaming service, says Matthew Garrahan in the FT. With sales of downloads from online stores like Apple’s iTunes falling, streaming is seen as the future. This deal could trigger an arms race if other big tech groups like Google join the fray. Prepare for Spotify, the market leader, to come into play.

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