Getty Images 
 
 Read into it what you will: Apple is staying coy about its math behind the $3 billion acquisition of Beats, but Beats Music -- the headphones company's fledgling subscription-streaming music service -- got the first shout-out in the computer maker's release about the deal. 
 
 A potential focus on Beats Music hints at how Apple plans to stay relevant as consumers' preferences for music change by finally embracing a subscription model it has long shunned. But why Beats? And what will the acceptance mean for the future of Apple? From early signs, Apple seems willing to tap its enormous stockpile of cash to buy what is hard for anyone to build: the cool factor that comes with Dr. Dre and Jimmy Iovine. And early signs elsewhere point to a future where all-you-can-eat music helps downloads rather than hurts them. 
 
 Apple has consistently been dismissive of subscription music services like Beats Music, which launched in January with the model that $9.99 gets you all the music you want to hear for a month. Subscription services have been around since Rhapsody launched in 2001, but Apple co-founder Steve Jobs referred to the model as "bankrupt" and insisted "people want to own their music." He was right, for a long time -- download sales in the US grew every year for a decade. 
 
 Until last year, that is, when they shrank for the first time ever. Meanwhile, subscription streaming services like current market leader Spotify -- though still small compared to music downloading -- posted the best growth rate of all digital categories, according to data from the Recording Industry Association of America. 
 
 Jimmy Iovine, Apple executive 
 
 Less tangible is the benefit of bringing Iovine, a significant figure in the music industry, to Apple. Iovine, Apple noted in its release, "has been at the forefront of innovation in the music industry for decades, and he has been an instrumental partner for Apple and iTunes for more than a decade." 
 
 Iovine worked as a recording engineer with legends like John Lennon and Bruce Springsteen and as a producer for big acts like Tom Petty & The Heartbreakers, Patti Smith, and U2. He founded Interscope Records in 1990, which eventually became part of Vivendi's Universal Music Group, one of the remaining big three music labels. His label hosted such stars as Dr. Dre (shockingly), Eminem, the Black Eyed Peas, and Lady Gaga. 
 
 He also pitched a subscription service to Jobs in 2003. The Apple founder, clearly, was not persuaded. 
 
 But Iovine eventually followed that path on his own. He founded Beats with rapper and producer Dr. Dre in 2006, first as a licensor of its brand to headphone maker Monster and then as the maker of Beats headphones itself in 2012. That same year, Beats bought MOG, an on-demand subscription service that won solid reviews but failed to gain much traction. Iovine said that he plans to combine that MOG technology with the Beats brand to create what eventually launched as Beats Music in January. 
 
 So what makes him valuable to Apple? Beats headphones success -- the company leads the high-end headphones market -- proves his track record in cultivating coolness and bulldozing savvy marketing to sell high-margin, high price-tag electronics. 
 
 "We can see the strategic value in having talent" like Dr. Dre and Iovine join the Apple team, ISI analyst Brian Marshall said in a note, adding that Beats' nascent subscription business can bolster iTunes Radio. 
 
 Tim Cook 
 
 The 'star-struck' premium 
 
 Like those who pay top dollar for a set of cans with the ubiquitous lower case "b" on the sides, Apple is paying a premium, too. 
 
 PrivCo, a provider of financial data on private companies, estimates Beats Electronics made about $1.02 billion in revenue last year for a profit of $40 million, which was weighed down by debt payments linked to private equity firm Carlyle Group's leveraged investment last year and big dividend payouts to Dr. Dre, Iovine, and Vivendi, a corporate backer through its Universal Media Group. 
 
 "Apple is paying a star-struck valuation for Beats Electronics, based on PrivCo's analysis of Beat's private financials and comparable consumer electronics companies," the data provider said. "No rational analysis can justify Beat's valuation of $3 billion without some unknown strategy only Apple is privy to, such as expanding into headphones used as wearable tech." 
 
 The acceleration of subscription music services may have contributed to the premium Apple paid, too. Although Apple could craft its own subscription service, and likely will need to negotiate new licensing deals with major music labels after Beats acquisition anyway, it will gain the human curatorial cachet that Beats Music has marketed as its identity. And though Beats Music's subscriber numbers are limited by its lifespan of just four months, a major partnership with AT&T gave it a jump start into a huge base of potential customers, and it will soon have iTunes' 800 million global registered users to work with. 
 
 Music downloads in jeopardy? 
 
 But what of the fear that subscriptions will cannibalize downloads? It's a paramount worry for Apple, with its iTunes store still considered the king of the format. Downloads are the biggest source of music sales in the US, and while physical sales still beat digital ones globally, the inflection point is coming based on data trends from the International Federation of the Phonographic Industry, an organization that represents the recorded music industry worldwide. 
 
 The deal wasn't turning any investors' heads Wednesday, with Apple shares up just 28 cents, or less than a percentage point, at $624.29, in after-hours trading. 
 
 Apple hasn't shunned the streaming business entirely. In September, it launched iTunes Radio, a Pandora-like streaming radio service that generates revenue from advertising -- but the product was largely a support system for the iTunes store, with red and green "BUY SONG" links included on every screen as tracks play. 
 
 Of all the major online music services, only Google's Play Music has offered both a music download store and a subscription streaming service alongside one another. Executives there told CNET the two services are additive to one another, rather than eating the other's lunch. 
 
 Put that way, the Beats buy may be an expensive way for Apple to jump into the subscription race and, with the massive scope of iTunes to fuel it, leave all the others in the dust. ||||| Image copyright Getty Images Image caption Is Dr Dre - born Andre Young - hip-hop's first billionaire? 
 
 "The Forbes list just changed." 
 
 That is the boast made by singer-songwriter Tyrese Gibson in a video posted on Facebook (and later removed), before he is pushed aside by Dr Dre, the co-founder of the Beats Electronics firm. 
 
 The list of the richest people on the planet, says Dre, the 49-year-old hip-hop star and entrepreneur, has changed "in a big way". 
 
 "The first billionaire in hip hop right here from the... West Coast, believe me," he said, before the video abruptly ends. 
 
 By most accounts, Apple's $3bn (£1.8bn) acquisition of the Beats headphone and music streaming service will increase Dre's net worth from an estimated $550m to almost $800m - making him, if not hip-hop's first billionaire, certainly hip-hop's wealthiest man. 
 
 So how did Dr Dre, born Andre Romelle Young in inner-city Los Angeles, build his fortune? 
 
 Hip-hop's richest artists Image copyright Getty Images Dr Dre / Andre Young - $800m (estimated) Sean "Diddy" Combs - $700m Jay-Z / Shawn Carter - $520m Birdman / Bryan Williams - $160m 50 Cent / Curtis Jackson III - $140m Source: Forbes list 
 
 Borne of necessity 
 
 Dan Charnas, a former hip-hop record producer and author of The Big Payback: The History of the Business of Hip-Hop, says that Dr Dre's business acumen was shaped by the culture of hip-hop in the 1980s, which was by necessity more entrepreneurial. 
 
 "There's a long tradition of entrepreneurship for artists in the hip-hop business because there was no other way they were going to get out there," says Charnas, noting that in the 1980s, major record labels and radio stations were hesitant to invest in and promote hip-hop music. 
 
 "Russell Simmons [and Rick Rubin] had to start their own music company if people were going to hear these records," he adds, referring to Def Jam records, one of the first and most successful hip-hop labels. 
 
 "The hustle of that extended to everything." 
 
 Diversify 
 
 Dr Dre was certainly part of that early, scrappy hip-hop milieu. 
 
 Image copyright Getty Images Image caption Dr Dre diversified his revenue stream by identifying and producing new music by artists like Eminem 
 
 Although he first found success as a musician with the World Class Wreckin' Cru and then with the seminal group N.W.A. - pioneers of gangsta rap - he was also a keen collaborator and producer, thus ensuring he had two revenue streams: one from performing, and another from producing. 
 
 Why beg Adidas for an endorsement deal and make them all the money when you could put your own clothing out and do it yourself? Dan Charnas, Former hip-hop producer 
 
 Just a year after he released his debut album, The Chronic, in 1992 - which sold three million copies and won a Grammy award - Dr Dre also helped produce Snoop Dogg's first album, Doggystyle, which sold an astonishing five million copies. 
 
 Like many hip-hop stars of the era, Dre also made sure that he earned a cut of his own sales as a producer - eventually becoming "the single most influential producer in hip-hop history", according to Rolling Stone magazine. 
 
 After a falling out with his label, Death Row Records, due to a contract dispute (among other concerns), Dre negotiated a deal with Interscope to start his own label, Aftermath Entertainment, in 1996. 
 
 He then signed and helped produce albums by young hip-hop artists, most notably Eminem, before selling his share of the label back to Interscope in 2001 for a reported $35m. 
 
 Brand power 
 
 Although he rose to fame as a performer, Dr Dre has not released a solo album since 1999. 
 
 Image copyright AP Image caption Successful music mogul Jimmy Iovine (left) suggested the idea of an audio line to Dr Dre 
 
 Instead, he has capitalised on a trend in hip-hop that sprang up during the 1990s, when the genre's biggest stars, like Jay-Z and Sean "Diddy" Combs - aka Puff Daddy and P Diddy - launched their own clothing labels and consumer products. 
 
 Jay-Z founded Rocawear and Combs founded Sean Jean. Both are worth many millions of dollars. 
 
 People look at you like you're crazy when you say you don't need any more money - who says that? Dr Dre 
 
 "Why beg Adidas for an endorsement deal and make them all the money when you could put your own clothing out and do it yourself?" says Mr Charnas of the entrepreneurial spirit which pervaded hip-hop at the time. 
 
 Dr Dre was similarly pushed into consumer branding, but he took a slightly different route. 
 
 As the possibly apocryphal story goes, Dre's lawyers had asked him to endorse sneakers. 
 
 He ran into then-Interscope chairman Jimmy Iovine on the beach, who said something along the lines of: "[Expletive] sneakers, let's sell speakers." 
 
 'The way I do' 
 
 From there, the pair first partnered with Monster, a well-respected audio firm known mostly for their HDMI cables, to design and manufacture the Beats headphones. (In 2012, Monster and Beats announced the partnership had ended.) 
 
 "Monster had a good name in audio circles," says Mr Charnas of the early hype surrounding the headphones, which soon became known as accessories for the "true" music lover. 
 
 Image copyright Getty Images Image caption Most experts say the Beats success story is due in part to a canny marketing effort 
 
 The Monster reputation helped - but so did celebrity endorsements, which included Lady Gaga, as well as prominent placement within music videos. 
 
 "Beats is viewed as a triumph of marketing more than it is a fantastic product - there are a lot of people who feel there are better headphones to be bought in the market," says Mr Charnas. 
 
 Dr Dre used his reputation as a producer to market the product, saying: "Hear what the artists hear, and listen to the music the way they should, the way I do." 
 
 But the hip-hop artist has previously maintained that for him, it isn't all about the cash. 
 
 In an interview with Esquire last year, he talked about turning down potential investors by telling them he doesn't need any more money. 
 
 "That part is entertaining, because people look at you like you're crazy when you say you don't need any more money. Who says that?" he said. 
 
 Perhaps hip-hop's richest man did used to say that. At least until Apple came knocking. ||||| Apple Inc. (AAPL) agreed to buy Beats Electronics LLC for $3 billion, its biggest-ever acquisition, nabbing a popular line of headphones and a nascent subscription music-streaming service as the iPhone maker seeks to rev up growth. 
 
 Beats founders Dr. Dre and music-industry executive Jimmy Iovine will join Apple, the companies said in a statement yesterday. The purchase price is $2.6 billion, with $400 million more that will vest over time. The acquisition is projected to close in the quarter that ends in September. 
 
 The deal signifies that Apple Chief Executive Officer Tim Cook is willing to use the company’s $150.6 billion in cash more aggressively, a departure from predecessor Steve Jobs’s playbook of acquiring smaller companies to bring in technology and talent. As sales of digital music downloads fall, buying Beats gives Apple a foothold in Internet-based streaming, where Google Inc.’s YouTube, Spotify Ltd. and Pandora Media Inc. (P) dominate. 
 
 “Music is such an important part of all of our lives and holds a special place within our hearts at Apple,” Cook said in the statement. “That’s why we have kept investing in music and are bringing together these extraordinary teams so we can continue to create the most innovative music products and services in the world.” 
 
 Photographer: David Ebener/AP Photo Close Close Open Photographer: David Ebener/AP Photo 
 
 Buying Growth 
 
 The deal indicates how the CEO, who is facing pressure to jump-start Apple’s revenue amid cooling iPhone and iPad sales, is shifting tack to acquire some growth. Even as Google and Facebook Inc. have spent billions on purchases, Apple previously avoided tie-ups of this size. Its biggest past deal was $400 million for NeXT in 1997, which brought Jobs back to Apple. 
 
 Maynard Um, an analyst at Wells Fargo Securities LLC, wrote in a note yesterday that Apple should focus its deals on new types of businesses. 
 
 “While we believe Apple should get some benefit of the doubt because of its historical success, a music-related acquisition still seems, to us, more defensive,” wrote Um. “Given the changing landscape and our view that Apple will have to eventually evolve its business model, we believe Apple should be acquiring more offensive assets to better position itself.” 
 
 Apple shares rose less than 1 percent to $629.41 as of 9:36 a.m. in New York 
 
 Iovine’s Overture 
 
 The deal had been anticipated, after news of Apple’s talks with Beats emerged earlier this month. Apple made the official announcement yesterday a few hours before its head of iTunes, Eddy Cue, and Iovine were scheduled to speak together at a technology conference. Cue will oversee the Beats Music team for Apple, while marketing chief Phil Schiller will run the Beats headphones group. 
 
 Photographer: Ty Wright/Bloomberg Beats Electronics LLC Beats by Dr. Dre headphones are displayed for sale at a store in Reynoldsburg, Ohio. Close Beats Electronics LLC Beats by Dr. Dre headphones are displayed for sale at a store in... Read More Close Open Photographer: Ty Wright/Bloomberg Beats Electronics LLC Beats by Dr. Dre headphones are displayed for sale at a store in Reynoldsburg, Ohio. 
 
 Iovine said yesterday at the Code conference in Rancho Palos Verdes, California, that he was the one who initially approached Apple about a deal with Beats, with Cook and Cue involved in negotiations to complete the agreement. Cue added that he had wanted to work with Iovine for a long time. 
 
 “At the end of the day, it’s not about what Apple’s doing today or what Beats is doing today -- it’s about the things that we’re going to do together and those things are going to be much greater than anything we could do on our own,” Cue said. 
 
 Beats Music 
 
 A central part of the deal’s allure is the Beats Music service, which highlights how serious the Cupertino, California-based company is about its own music-subscription service. Jobs had long resisted such a move, insisting that people don’t want to rent their music. 
 
 Apple took a step in that direction last year, introducing iTunes Radio, an advertising-supported music-streaming service that competes with Pandora. 
 
 While Apple’s iTunes remains the world’s largest seller of music, it only offers downloads of single tracks and albums. Music-streaming services, where a customer pays for access to the songs instead of owning them in a digital library, have gained in popularity, said Mike McGuire, an analyst at Gartner Inc. Yet the services aren’t lucrative and present business challenges, even for Apple, he said. 
 
 “They haven’t moved to a subscription model, and there are a lot of good reasons they didn’t,” McGuire said. “The big one is there isn’t a lot of money to be made.” 
 
 Apple plans to keep Beats as a stand-alone brand and the music application that will run on devices based on Google’s Android software and Microsoft Corp.’s Windows operating system, as well as those made by Apple. 
 
 Not everyone is a fan of music-streaming services. Musical acts including Radiohead have criticized subscription services because they don’t compensate artists as well as the pay-per-track model. For instance, the latest album from the band The Black Keys is available on iTunes, though not Spotify. 
 
 New Service 
 
 Beats introduced its music-subscription service earlier this year. Like Spotify and other rivals, the company offers unlimited access to millions of songs in exchange for a monthly fee. Beats hired music critics, radio DJs and record-label veterans to create playlists and other curation tools to help customers navigate the overwhelming amount of music available -- a component Iovine said was missing from the experience. 
 
 “It needs feel. It needs culture,” Iovine said in an interview with Bloomberg Businessweek in 2012. “What Apple has in the downloading world is very, very good. But subscription has an enormous hole in it, and it’s not satisfying right now.” 
 
 Iovine said at the Code conference that Beats Music now has 250,000 subscribers after a few months. By contrast, Spotify has about 10 million. 
 
 Apple Pipeline 
 
 In addition to music, Cue hinted at the Code conference about Apple’s interest in television. He said the TV-viewing experience today is poor and that it’s a hard problem to solve because of all the different parties involved, including media and pay-TV companies. He declined to elaborate on the company’s plans beyond that its Apple TV product will continue to evolve. 
 
 Cue also said that products to be introduced later this year are the the best pipeline Apple has had in 25 years. The company is holding its annual developer conference next week in San Francisco. 
 
 In buying Santa Monica, California-based Beats, Apple also would get the company’s colorful, high-end headphones. Iovine and Dr. Dre, whose given name is Andre Young, started Beats in 2006 amid rising use of iPods and smartphones to listen to music on the go. 
 
 The pair quickly proved their marketing acumen. The headphones, priced at about $170 to $450, gained popularity as stylish accessories for the general public and not just audiophiles, fueled by partnerships with musicians, fashion designers and athletes like San Francisco 49ers quarterback Colin Kaepernick and NBA All-Star Lebron James, who helped pitch the products to a younger audience. 
 
 “They have done a hell of a job in branding,” McGuire said. 
 
 Fashion Finds 
 
 With Iovine and Dr. Dre, Cook continues to bring in people with fashion experience. Former Burberry Group Plc CEO Angela Ahrendts now runs the company’s retail operation, and former Yves Saint Laurent CEO Paul Deneve is working on “special projects” for Cook. 
 
 Apple and Beats have deep ties. Iovine, who is stepping down as an executive at Universal Music Group as part of the deal, was a friend of Jobs and an early music-industry advocate for Apple’s efforts with the iPod and iTunes. 
 
 The acquisition is a boon for Iovine, who has worked on projects as varied as Bruce Springsteen’s “Born to Run” and the movie “8 Mile,” and Dr. Dre, whose seminal rap album “The Chronic” helped make rap music popular with suburban teenagers in the 1990s. 
 
 Universal Music was an investor in Beats, along with private equity firm Carlyle Group LP. Universal Music said yesterday that John Janick, chief operating officer and president of Interscope Geffen A&M, would succeed Iovine as Interscope chairman. 
 
 “We wish Jimmy the very best and look forward to enhancing our partnerships with Apple and Beats for many years to come,” said Lucian Grainge, chairman and CEO of Universal Music, in a statement. 
 
 To contact the reporters on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net; Brian Womack in Rancho Palos Verdes at bwomack1@bloomberg.net 
 
 To contact the editors responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net Robert Fenner
– Apple has made the biggest buy in its history—and made Dr. Dre the richest man in hip-hop history. The company has confirmed that it is buying Beats Electronics for $3 billion, down from the $3.2 billion discussed earlier this month, reports Bloomberg, which notes that Apple is sitting on enough cash to have bought the headphone and music-streaming firm 50 times over and CEO Tim Cook appears ready to use the money pile more aggressively than predecessor Steve Jobs ever did. Dre has a 25% stake in the firm and the deal puts him close to being rap's first billionaire, the BBC notes. So what's in it for Apple? The company appears to be paying a "star-struck valuation" for a cool company, one analyst tells CNET, saying the price tag appears too high unless Apple has a secret strategy like "expanding into headphones used as wearable tech." But Cook says the buy was a "no-brainer" and while Apple could easily have built a similar streaming service, the talent at Beats Electronics is the most exciting part of the deal. "These guys are really unique," he tells the New York Times. "It's like finding the precise grain of sand on the beach. They're rare and very hard to find."