Can’t Keep Quiet | How Dr. Dre’s Early ‘Celebration’ Nearly Killed His Landmark $3 Billion Deal with Apple

Dre and Iovine Credit: Kathy Hutchins / Shutterstock
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It was the most expensive and famous acquisition in Apple’s history, but it almost didn’t happen, thanks to one person’s apparent inability to keep their mouth shut.

On May 8, 2014, The Financial Times reported that “people familiar with the negotiations” had revealed that Apple was about to close a deal to purchase Beats for a princely sum of $3.2 billion — an amount that promised to make founders Dr. Dre and Jimmy Iovine billionaires.

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Unfortunately, even though everyone involved was supposed to keep the deal quiet until it was officially announced, Dr. Dre couldn’t resist the urge to make an impromptu video that same night, boasting along with Tyrese Gibson about how he had just joined the “billionaire boys club for real, homie” and become “the first billionaire in hip-hop, right here from the mother-f-‘in west coast.”

At the time, many insiders thought that was it — that Dre had just killed the deal by shooting his mouth off. Folks got more nervous as the end of the month approached, and the deal still hadn’t been completed.

In the 2017 HBO documentary The Defiant Ones, Dre candidly said that the incident was one of the most embarrassing moments of his life, while Iovine said he was worried “the deal could blow.”

However, three weeks later, the deal went through for a final price of $3 billion. Everything seemed fine on the surface, and nobody gave much thought to why the price had dropped by $200 million. After all, such things aren’t uncommon in massive acquisition deals like this.

It turns out Apple’s $200 million “discount” came as a result of Dr. Dre shooting himself in the foot.

In the latest behind-the-scenes book about Apple, After Steve: How Apple Became a Trillion-Dollar Company and Lost Its Soul, author Tripp Mickle shares the story of what transpired in Cook’s office after Dre spilled the beans.

As noted by iMore, Mickle explains how Tim Cook was impressed by Beats’ human-curated playlists and thought it would be the ideal “solution to the company’s failure to enter the streaming music business.”

Beats also offered Cook a solution to the company’s failure to enter the streaming music business. Recognizing that the market had shifted, Cue’s services team was at work creating their own streaming offering that would allow people to blend their iTunes purchases with a full catalog of songs. But the early designs of the service were discouraging. It looks more like an iTunes list than the colorful modern apps of its rivals.Tripp Mickle, After Steve: How Apple Became a Trillion-Dollar Company and Lost Its Soul

While Apple never spoke publicly about what it was after in its Beats acquisition, most analysts and industry insiders figured it would be a launching platform for Apple’s own streaming service. They were proven right when Apple Music launched the following summer.

Not everybody inside Apple was on board with the idea of acquiring Beats. Then-CFO Peter Oppenheimer was concerned Beats wouldn’t “fit with Apple’s culture,” citing Dre’s history of violence. Others within Apple’s upper echelons still felt Apple should build a streaming service of its own.

However, Cook wisely felt that the Beats team was necessary to “infuse an Apple service with the sensibilities of music lovers and artists.” He also believed Iovine and Dre would help give Apple more credibility with customers.

Within Apple, Beats Music was codenamed “Dylan,” and Beats Electronics was given the handle “Beatles” — both nodes to Steve Jobs’ favorite artists.

Cook originally wanted only Beats Music, but Jimmy Iovine insisted that Beats Electronics be part of the deal. Beats’ headphones may not have been what Apple was aiming for, but that’s also worked out quite well for the company.

Still every bit the logistical genius that made him legendary as chief of Apple’s operations, Cook also realized that Apple could produce Beats headphones at a much higher profit margin, helping the acquisition “pay for itself in a few years.”

Mickle says Apple agreed to pay $3.5 billion — even more than the $3.2 billion reported initially by The Financial Times, and the deal was all but closed.

It was a sum that Iovine and Dre could barely fathom. As the lawyers worked through final details, Iovine summoned the leadership team of Beats to his home near Beverly Hills. He told everyone that they were on the cusp of finalizing a massive deal. The only thing that could spoil it would be for word of the deal to leak.Tripp Mickle, After Steve: How Apple Became a Trillion-Dollar Company and Lost Its Soul

Talking to the rest of the Beats team, Iovine likened Apple to the Mafia, saying it was “tight-lipped and expected its business partners to be the same.” He told them to “keep their mouths shut and turn off their phones.”

To Dre, Iovine made that even more pointed: “Remember that scene in Goodfellas where Jimmy tells the guys, ‘Don’t buy any furs. Don’t buy any cars. Don’t get showy’? Don’t move.” Dre reportedly acknowledged that he understood.

At 2:00 A.M., Iovine got a call from Puff Daddy, who was screaming that Dre and Tyrese, a rapper, were talking about the deal in a Facebook video. Tripp Mickle, After Steve: How Apple Became a Trillion-Dollar Company and Lost Its Soul

Iovine was sure that Dre had killed the deal. After all, he had just outed the largest acquisition in the history of the world’s most secretive company before it was official.

Apple’s Chief Executive was almost certainly not impressed. Cook summoned the two Beats co-founders to Cupertino. However, he was also eerily calm about the whole thing.

Instead of the anger and cursing that would have poured out of Jobs in a moment like that, Cook exuded calm.Tripp Mickle, After Steve: How Apple Became a Trillion-Dollar Company and Lost Its Soul

Cook said he was “disappointed and wished that Dre’s social media outburst hadn’t happened.” Still, rather than calling the deal off, he demanded an adjustment to the terms, shaving around $200 million off the price — just enough to keep Dre out of the billionaire boys’ club.

The reduction led staff at Beats to say that Apple had given Dre just enough of a haircut to make sure that he did not become a hip-hop billionaire.Tripp Mickle, After Steve: How Apple Became a Trillion-Dollar Company and Lost Its Soul

It’s unclear whether that was Cook’s intent, but it wouldn’t be surprising to find out that was precisely what he was thinking. Apple still wanted — nay, needed — Beats, but the most powerful Chief Executive in the world was not to be trifled with; Cook wasn’t about to ignore Dre’s stunt.

Apple never formally said anything about the lower price since the $3.2 billion amount reported by The Financial Times was never official.

The New York Post got wind of the $3 billion amount shortly before the deal was officially announced but assumed it was the result of a leaked report that had revealed Beats Music had only 111,000 subscribers.

However, that shouldn’t have come as a surprise to Apple, which would have had full disclosure of that information before even coming to the negotiating table.

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