Apple purchased Beats earlier this year for $3 billion and its co-founders Jimmy Iovine and Dr. Dre joined the company. At the time of the deal little was said about how the products and services would be integrated into Apple's offerings.
Beats, in addition to its signature line of headphones, owned Beats Music, a subscription-based music offering. That service operates in a similar fashion to the more popular Spotify, in that paying members can select songs and listen to them as often as they want. Apple's own free, ad-supported iTunes Radio service operates more like a radio station using the model popularized by Pandora Media (NYSE:P) in which songs are selected by the app based on the listener's likes and dislikes, but specific songs cannot be chosen.
Whether you consider what Apple allegedly plans to do with Beats Music a shutdown, may come down to semantics.
Re/Code's Peter Kafka gave his take in an article on Monday where he reported on Apple's denial of the shutdown while leaving plenty of room for interpretation:
Apple won't shutter the streaming service. It may, however, modify it over time, and one of those changes could [involve] changing the Beats Music brand. ... Shuttering the Beats Music brand name makes some sense, as the company hadn't generated a ton of traction before Apple bought it in May -- at that time, it only had a few hundred thousand subscribers.
There is definitely some wordplay going on here, but it's clear by Apple's recent actions that changes are under way with the Beats Music brand for very logical reasons. It should be noted though, that even if the Beats Music name gets phased out, the company has remained committed to the popular "Beats by Dre" headphone line.
What is Apple doing?
Apple has already placed Beats Music boss Ian Rogers in charge of iTunes Radio, which would smooth integrating the two services. Back in early August The Wall Street Journal said sources had told it that Rogers, a former Yahoo! executive, would "run both teams to create cohesion in Apple's streaming-music options."
Integration seems inevitable as Apple did not even pre-install the Beats app on its new iPhones. If Beats Music had a future as a stand-alone brand, it's hard to imagine Apple would not give it a leg up by bundling it with its new phones and recently updated mobile operating system.
It's not as if Beats Music does not need the help, as it only has around 250,000 paying users while iTunes has a user base of 800 million and over 400 million stored credit cards, according to TechCrunch.
Keeping the Beats Music technology makes sense, but keeping the brand does not because it has such a comparatively small user base. Apple should leverage its huge user base to make the best use of the Beats Music subscription service, but it makes the most sense to do that under the iTunes banner. Why build a new audience when you already have a huge one that is likely to be interested in having a subscription model as a choice?
Integrating Beats Music to iTunes and iTunes Radio would give the company something none of its competitors have -- every possible option. Under its brand Apple would have a free service, a paid subscription offering, and the ability to buy music outright, making it a one-stop shop giving iPhone and iPad users no reason to consider any alternatives.
This is what Apple does
Apple has always been all about the Apple brand. For example, the company recently bough Swell, which makes a tool for organizing podcasts and immediately shut it down. The Swell tech is likely to be used to bolster Apple's own not-very-useful podcast app, but the brand name has gone away. This has been the general Apple pattern with acquisitions over the years and the same fate befell music service site Lala.com after Apple bought it.
The biggest reason for keeping Beats Music separate from iTunes is that the iTunes Radio model exposes people to songs which might lead them to buy them in iTunes. Having a Beats subscription, or something like it under the Apple name, makes that purchase unnecessary.
Apple, however, has to know that the days of sales via digital downloads are coming to end. Nielsen reported in April that "the transition to the streaming ecosystem in the U.S. is picking up steam," noting that the fall in download sales "nearly match[es] historic drops in CD sales from 2007-2010."
That's bad news for iTunes that's only going to get worse and Apple knows it needs to offer subscription-based streaming or risk losing its audience to other providers. Integrating Beats Music into iTunes is the best way to do that, and no matter what the company calls it, that's what's going to happen.
Daniel Kline owns shares of Apple. He uses Pandora's free service while driving. The Motley Fool recommends Apple, Pandora Media, and Yahoo. The Motley Fool owns shares of Apple, Pandora Media, and Yahoo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.