Liberty

The cost of that strategy tax must be weighted against any strategic gains. If you lose in some ancillary business but gain in your primary business, the tradeoff can be worth it (ie. anything that makes the iPhone more attractive has huge leverage). Apple cares more about profits than eyeballs or marketshare. Record labels also care more about money than how many people are listening for free... I doubt Apple will ever have more trouble getting good deals with music labels than Spotify, thanks to their iTunes business, and now if they have the chairman of Interscope Records on their team... Beats could very well make more money than Spotify and Rdio despite not being on all platforms in the same way that the Apple App Store makes more money while being on just one company's devices, or how iTunes is on one mobile device OS (though many computer OSes, which is becoming less relevant). Apple users just spend way more, and Beats could have many more paying subscriptions than Spotify despite having a smaller number of users. And since both Spotify and Rdio are available on iOS, nothing's lost for Apple users, though an Android user who feels Beats is the best music streaming service might be tempted...

I wouldn't be surprised if Apple killed the Android and Windows Phone versions of the Beats app over time. They gain almost nothing by keeping them (a few dollars, not material to them). They would gain more by making it iOS-only; people who like Beats can only get it on iPhone/iPad, people who get an iOS device get access to a service that nobody else has. Further differentiation and lock-in, one more reason to buy the hardware and stick around. It'll integrate nicely into CarPlay too, I bet. More money to be made that way. They'll probably keep the web interface, but that won't help people with Android mobile devices much. iTunes exists on Windows because the computer serves as a synch station/management interface for the device. But iTunes doesn't exist on Android/Windows mobile devices. Beats might be multi-platform in the same way (if you have an account, you can listen/manage your stations/playlists on your computer at work, but you can't listen through the app on non-iOS mobile devices).

How can you conclude that from this? It's not like Apple has stopped investing in iOS and is now just focused on services. This is just a small acquisition for them to make their ecosystem a bit better. 0.6% of market cap for a fast-growing high-margin business. Even if it turns out to be a bad acquisition, it won't change much. If OSes are commoditizing, how is it that Apple is making the vast majority of all the profits in the industry? Just because its hardware is better designed? Because Apple's services are so much better? Or maybe the OS is a major differentiator of the user experience too and those other things aren't enough (a lot of good focusing on hardware did to HTC and Nokia)... Don't look at the OS from a programmer's point of view ("oh, who cares what kernel architecture"), look at it as the thing that customers look at and interact with all day long. It has huge value. This is a consumer product, not a piece of machinery that you stick in the corner of a factory so all you care about is that it does the job at the lowest cost... People who don't get Apple mostly go wrong because they have the wrong mental models. They look at how enterprise products commoditize and expect consumer products to act exactly the same way despite the fact that they use different yardsticks. Android is a commodity. Anyone can use it, it gives no advantage to anyone over anyone else to use it. In fact, Android vendors are making big efforts to differentiate themselves by changing the UI and software (Tizen, proprietary apps that duplicate existing android apps, which is why Samsung has 2 settings apps and 2 photos apps, etc), it's just too bad these vendors mostly suck at software and that there's only so much you can do on top of a platform you don't control. But iOS is differentiated; only Apple can use it and shape it, and they also happen to shape 100% of the hardware it runs on, so they can integrate it much better, and people clearly like the result better for a variety of reasons. That must be why the Galaxy S5 got lukewarm reviews and Samsung just fired the guy in charge of its design. Because they're now on the level of quality of the iPhone.

One more: http://www.globalminingobserver.com/altius-flies-higher

In the more than 1 year old Gizmodo piece linked in the other thread, there's this: "The same year Beats Electronics dropped Monster, the company put up $519 million in sales (versus $298 the year before), capturing a commanding 64% of the "premium" headphone market ($100 and higher)." According to Wikipedia, Beats dropped Monster in 2012. So with those kinds of growth rates, they could be around 1 billion in sales now, maybe above (depends if they slowed down, sped up). At what margins? I don't know, but probably high. But those numbers could be wrong...

If apple was a 10bn company maybe, but this is barely material for them. Just beefing up music streaming and accessories and getting new talent, probably.

I don't know. Where is your valuation of the deal? I said I didn't know. I'm waiting. I just pointed out some things I saw. It could be a waste of money, it could be great, it could be just one more bolt on we never hear about again. We'll see.

And you can be that sure about what it's worth to Apple because..? I'd be curious to know if Beats makes more money than Nest. If I had to guess, I'd say probably by a pretty wide margin. A lot more people care about headphones and streaming music than thermostats...

I don't think they're paying for just the brand. I'm just saying it's worth something too. Apple isn't selling $300 headphones (that's about half the price of an iPhone!). Maybe they could if they started making great headphones, but their resources are best used making other things (focus is important). Actually, if there's someone who knows how profitable 'accessories' for consumer electronics are, it's Apple. They sell so much of that crap in their retail stores... And the rumor number is 3.2, not 3.5. No idea. NYT could be wrong. But Carlyle most likely valued it as a standalone company and what it could earn on its own. Apple looked at it as what it would be worth inside the Apple machine. Those can be two very different things, just like PA Semi was worth a lot more inside Apple than as a standalone.

There is nothing wrong with AAPL doing deals. However, can you see anything with the "Beats" deal that is even comparable to the aforementioned deals in terms of long term development? In other words, how does the scale of AAPL really make this deal make sense in your view? Thanks. I don't think it's anywhere near what adsense was for Google in potential, obviously. I just used that example to show that there's no shame in getting stuff through acquisition rather than building it internally, even very important stuff (which Beats isn't for Apple). But 3 billion for Apple is less than 1% of their market cap, so it's basically a small tuck-in for them, just beefing up their music/design offerings, not trying to massively change the company or build a new leg to the stool. Let's keep things in perspective. I do think that some of the things I mentioned above could be very good for Apple, though. Helping further differentiate/improve the iOS/iPhone ecosystem is worth a lot of money.

Brands are worth something, ask Coca-Cola or Procter & Gamble... I think Beats is probably a lot more profitable than most of us would think. A recent NYT piece says they have about 1.5 billion in sales and that even some of their most expensive headphones have been estimated to cost about $14 to make. They sell earbuds for $100 and headphones go for multiple hundreds of dollars (imagine the margins on that). And then the streaming service, based on the music talent and connections at the company, could very possibly be top notch (I haven't tried it) and competitive with the very best. But maybe the NYT numbers are wrong, I don't know. Too early to tell, but $3 billion could turn out to have been cheap in a few years, though we'll probably never know because Apple won't tell us if the Beats designers end up helping improve the iWatch line or whatever... And we won't know what impact on sales it could have if every iPhone comes with a pair of Beats earphones that would cost $100 if you bought them standalone while the competition comes with generic stuff, and if Beats streaming is only available on iOS and is better than the competition. We'll have to wait and see.

Yeah, Apple isn't batting 1.000, shame on them... They still do dominate the digital music industry, btw, and iTunes Radio and iTunes Match aren't nothing. They just don't dominate yet the new upcoming thing (which isn't very profitable yet). What's wrong with acquisitions anyway? The ad business (Adsense/Doubleclick) was an acquisition for Google. I'd rather see Apple fall behind in small aspects of their business - possibly because they keep all their best people working on iPhone and iOS and new products - than pull a Nokia or a RIM.

If true, I won't prejudge this one. Best to wait to have more info, as this is not a company that I know much about. But what I see is: People who have a good track record of designing consumer products that sell for high margins, which isn't as easy as it sounds. People who have experience in products that are, in a way, in the 'wearables' space (where fashion matters as much as the tech), a category that interests Apple (and everybody else since rumors came out that Apple was interested). People who have the best connections in the music industry of anyone and decades-long track records of success in a tough biz (it's like having James Cameron in charge of your film project; it helps), and a Spotify-like product (while iTunes Radio is more like Pandora -- the combination of the two could be pretty killer in that space). Apple sells a lot of Beats products in their stores, so they must have a pretty good idea of how well they do. Apple is very parsimonious with acquisitions. They usually buy something when they either really like the team and/or see a way to plug a technology/capability into their much larger ecosystem, and thus it's worth a lot more to Apple than to anyone else (they bought PA Semi and within a few years they were at the cutting edge of mobile chip design, from almost a standing start.. That's no doubt worth billions, but PA Semi would never be worth that alone). IMO they're seeing that a large chunk of the music industry is going with subscription/ad-based services and they want to be leaders in that too because, if they make a great service exclusive to iOS, it's one more way to sell iPhones and keep customers in the ecosystem. No idea about valuation because I have no idea how much money they make, or the quality of their engineers and designers (truly A++ players can be worth a lot -- how much is Jony Ive worth?). What I know is what will matter over time is how much the company is worth inside of Apple, not as a standalone, because it won't be (if this rumor is true), so it will have a very different installed customer base, market reach, and impact on other parts of the business (what % of sales spread over a few years must Beats increase to recoup 3.2bn? At Apple's scale this would be almost a tuck-in, just notable because they only do very small acquisitions usually). Just my 2 cents. We'll see when we have more info.

Does anyone who has been in contact with management know if they are thinking like this and have that kind of tax expertise? It certainly would be nice if they went all Leucadia/Malone and picked up a bunch of NOLs. Maybe someone could suggest it to them -- nobody's an expert in everything and maybe they haven't looked too much yet at that angle to optimize CFs...

Well done!

They were prevented from buying (as was SIRI) during the merger attempt. That all took place during Q1, if memory serves me right, so that's a pretty long period during which they couldn't buy. They also bought more charter, which they might be conserving cash for if the TWC-Comcast deal goes through. At least SIRI is back to repurchasing, which is almost the same as LMCA buying back.

With Malone it's always at least a little bit about taxes. It's probably better to have Trip buy the standalone entity than buy it when it's inside Liberty...

Could be. By having the A/B/C shares be even more SIRI-centric, it makes the choice easier for SIRI shareholders. They could have achieved most of the same thing with just the Broadband split, though, but maybe they want the Cs to trade to show SIRI shareholders that being non-voting doesn't create much of a discount.

http://i.imgur.com/Qc3FleT.png

That's a good question. I doubt it's just because they already had the lawyers draft the papers for the SIRI merger attempt :D Maybe they want to concentrate buybacks on the Series A common and so over time further consolidate management's voting power? Not that they truly need that... That's what it seems like to me too. They are capped at 34% of charter until 2016, iirc, so that leaves them some room.

If you look at the price at which they've been buying back: It seems like they might not be in a hurry to create the new trackers because they can buy back more at prices they like. Once the trackers are created, the market might re-rate the businesses and take that opportunity away. Yeah. Not sure what their plan is, but they probably have something in mind. They rarely just randomly spin things off.

Q1: http://ir.libertyinteractive.com/releasedetail.cfm?ReleaseID=846446

http://ir.libertymedia.com/releasedetail.cfm?ReleaseID=846439

http://basehitinvesting.com/some-thoughts-on-the-berkshire-hathaway-annual-meeting/ (sorry if this has already been posted)

http://studentofvalue.com/notes-on-the-outsider-ceos/ Some notes on the book.