Beats by Dre: A Case Study

Beats Electronics is one of the top manufacturers of audio equipment in the U.S., focusing primarily on headphones and speakers. It was launched as Beats by Dre, a specially designed line of consumer headphones produced by Monster Cable. The line was initiated and curated by the hip-hop mogul Andre “Dr. Dre” Young and the founder and then-chairman of Interscope Records, James “Jimmy” Iovine.

In this case study, we will take a look at the creation and evolution of the Beats by Dre brand. We will also highlight all the key players that helped shape the brand throughout the past eleven years. The story first takes us back to 2006, the year when it all began.

Dre and Iovine Join Forces

By this time, Dr. Dre had already been in the entertainment business for more than twenty years. He was known worldwide as a successful artist and an even more successful producer, having overseen the careers of dozens of prominent rappers. In 1996, he established his own label, Aftermath Entertainment.

Dre chose Interscope Records as Aftermath’s parent label, putting it in charge of distribution and promotion. Interscope was co-founded in 1989 by Jimmy Iovine, who served as its sole chairman since the label’s acquisition by MCA Music Entertainment Group in 1995. With its primary focus in hip-hop and R&B, the bond between Aftermath Entertainment and Interscope Records felt only natural.

Dre and Iovine would form a budding friendship, as well as a lasting professional relationship, which is still going strong to this very day.

Beats by Dre Takes Off

In 2006, music sales were declining due to online piracy. The majority of young people were listening to music  on their iPods, which came with a set of Apple’s recognizable plastic earphones. Iovine recounts that Dre approached him to express concern with how the poor quality of the earphones compromised the quality of his work. The two immediately knew what their next step was going to be.

As they started developing their own brand of headphones, Dre and Iovine approached Monster Cable to help them manufacture the product. Monster Cable was at the time best known for its 30-year experience in manufacturing its own brand of audio and video cables. The company was originally launched with the intention of producing specially designed audio cables that preserve sound quality.

Monster Cable joined the venture and the first set of Beats by Dre headphones was manufactured in late 2008. From the get-go, the brand’s advertising targeted mainly young people who listen to music on their iPods and mobile phones. To attract more young customers, the brand enlisted several prominent hip-hop and pop artists to endorse their product, as well as to develop co-branded products.

This marketing strategy proved very successful and led to the brand’s instant popularity among its young target demographic. Beats by Dre is also responsible for creating the market for celebrity-endorsed audio equipment, which many other manufacturers would go on to exploit. Even Monster Cable formed similar partnerships with celebrities like Lady Gaga, P. Diddy, and the basketball player LeBron James.

HTC: In – Monster Cable: Out

In August 2010, Taiwanese smartphone manufacturer HTC acquired a majority share in Beats by Dre for more than $300 million. Their vision was simple: in order to compete with other phone manufacturers in the market, they needed a strong brand to associate themselves with. Because of its success with young people, who are also the primary target group of smartphone manufacturers, they chose Beats.

Under the HTC agreement, Beats continued to operate as an autonomous business. The first major shakeup came in early 2012, when it was announced that Monster Cable would not renew its partnership with Beats. This effectively meant that the complete manufacturing process would from then on be overseen by Dre and Iovine, who were at the time looking to expand their workforce.

Later that year, Beats introduced its first two self-manufactured products: Beats Executive headphones and the Beats Pill wireless speakers. But this wasn’t the end of Monster Cable’s foray in the headphone manufacturing business. They immediately set out to take a piece of Beats’ market share by producing their own celebrity-endorsed headphones aimed at a slightly older demographic.

Iovine saw this move by their former partner as a cheap marketing ploy. Despite the competition’s attempts to destabilize Beats’ success in the market, the company – now operating as an autonomous business entity named Beats Electronics – reached $1 billion in revenues by early 2013.

By the end of 2013, the company had bought all of the shares previously owned by HTC. In January 2014, it launched its own subscription-based streaming service, Beats Music. Later that year, the company was in for some major changes.

beats music logo

Apple Buys Beats

On August 1, 2014, after almost three months of negotiations, Apple Inc. acquired Beats Electronics for $3 billion, turning the brand into its subsidiary. This move immediately resulted in the layoff of 200 workers from Beats, whose workforce at the time consisted of about 700 people. There was also the issue of how the streaming service Beats Music would be integrated into Apple’s portfolio.

On June 30, 2015, Apple launched its own streaming service, Apple Music. After only a year and a half, the Beats Music service was discontinued on that same day, and all the subscriptions were transferred to Apple Music. In order to maintain the brand’s presence in this new environment, Apple Music’s top radio station was named Beats 1.

Legal Issues

In its 11-year history, Beats Electronics has been faced with two big lawsuits. The first came in 2014, when audio equipment manufacturer Bose sued for five instances of patent infringement. The lawsuit was settled out of court four months later, and no details have been made public.

Monster Cable, Beats’ former parent company, sued in January 2015, alleging that Beats had used illicit tactics to push Monster out of the venture, while retaining the rights to all the products they had co-developed. The case was dismissed by the Supreme Court in August 2016.

The Current State of Things

Beats Electronics, now operating as a subsidiary of Apple Inc., continues to grow strong. Because Apple is not looking to sell Beats Electronics any time soon, there is no information available about the financial state of the brand. In April 2017, the company announced the launch of Beats Studio, a new generation of studio headphones tweaked for better portability and noise cancellation. Luke Wood now serves as the president of Beats, but Iovine and Dre remain involved in its day-to-day operations.

The partnership with Beats has also permanently changed Monster Cable’s portfolio. In addition to cables and electrical gear, they now have a headphone-manufacturing arm with dozens of products targeting both the casual consumer and studio professionals. The company isn’t on the market, either, so there is no information about its financial standing.

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