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Beats: How Dr. Dre 'Pulled One' On 2 Major Companies

Beats: How Dr. Dre 'Pulled One' On 2 Major Companies

Anticipation was high ahead of Apple Inc. (NASDAQ: AAPL)’s September event, as fanboys and analysts have become accustomed to seeing a new iPhone launched this time every year. However, a new smartphone was not all the tech behemoth was expected to present.

Among other gadgets and devices, analysts were hoping for Apple to unveil a suite of new Beats headphones. Apple came through in spades.

Notwithstanding, with Apple on the spotlight, this seems like a good moment to look into one of the few Apple products that were not an inbred development.

The Story Behind The Beats (Not The Beatles Impersonators!)

As the product line’s name suggests, Beats by Dre was created by none other than hip-hop legend Andre Romelle Young, a.k.a Dr. Dre. In a recent article, Uproxx’s Dan Seitz shared a look into the story behind Beats and how a major company “thought it was exploiting a celebrity only to discover, too late, that the celebrity was hustling them instead.”

Apparently, there’s more to the creation of Beats than Jimmy Iovine and Dr. Dre’s quest for better music quality than the one offered by Apple ear buds. The Beats headphones were engineered by Monster Cable, a company known for its penchant for litigation and aggressive marketing strategy.

So, when this marketing-heavy, hype-loving company was presented with the idea of creating a Dr. Dre-endorsed headphones suite, execs believed it to be a no-brainer. Not much later, they had teamed up to create headphones that made music more “dramatic” (using Iovine’s words) rather than delivering a better sound quality.

Related Link: Dr. Dre, Music Icon And Entrepreneur, Hits 15 Million Record Sales

In 2010, roughly two years after the product line was launched, HTC Corp.  (OTC: HTCCY) (OTC: HTCXF) (OTCMKTS:HTCKF) acquired the company for $309 million, but let Iovine and Dre keep control of the company. However, Monster was not happy of being left out and pushed for more money and control over the company.

When one messes with an O.G. ("Original Gangster"), however, shots can backfire. And this is exactly what happened to Monster, which got completely driven out after Beats decided to end its contract with them, boldly cutting ties with its key supplier and engineering provider.

Nonetheless, this was a bold move only for the naked eye. More informed "watchers" (give that Dre track a listen!) knew the contract allowed Beats to walk out at any time, with all it needed to continue to produce the headphones on its own.

A few months later, as parent company HTC struggled to stay afloat, Dre and Iovine bought back the firm’s stake in Beats for what would later prove to be a bargain. Separately, the Carlyle Group LP made a minority investment in the headphones maker — which would also prove very profitable not so far down the road.

As Beats’ value continued to spike, Monster remained benched. But the company wasn’t going down without a fight.

An Apple A Day Keeps The … Monster Away

In January 2014, Beats presented its own music streaming service, Beats Music. By August, the company was so well-known and reputable that Apple became interested and ended buying the company for $3.2 billion. While HTC and Monster suffered, the Carlyle Group, Dre and Irvin celebrated the huge win — Carlyle, for instance, had more than tripled its investment in seven months.

The billionaire sale, however, led Monster to once again come out swinging. The company sued and, yet again, the move backfired, as Apple revoked Monster’s rights to produce accessories for its products. This meant that roughly 25 percent of the company’s product line would have to go off the market never to come back.

Notwithstanding, bad news did not end there for Monster — which probably wished somebody had warned them about messing with an O.G. The company lost the suit to Beats, as the contract protected the latter. For a company that had thrived on litigation, this was a big lose. For Dre, however, a big win. The sale of Beats, he said, made him the first billionaire in hip-hop — although Forbes later situated his fortune around the $700 million area.

Now, for the party, check out the 2014 Beats event held after Apple's purchase.

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Disclosure: Javier Hasse holds no interest in any of the securities or entities mentioned above.


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