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Apple Agrees to Buy Beats for $3 Billion

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Apple Inc. said Wednesday that it is buying Beats Electronics LLC for $3 billion to bring a music-streaming service, high-end headphones and music-industry connections to the technology giant as it seeks to reignite growth under Chief Executive Tim Cook.

Apple said it would pay $2.6 billion in cash and $400 million in equity for Beats Music, a subscription music-streaming business, and Beats Electronics, which makes pricey headphones, speakers and audio software.

Beats co-founders—rap star Dr. Dre and music mogul Jimmy Iovine —will join Apple, and Apple will continue to use the Beats brand, a first for the company.

Mr. Iovine said he would leave his post as chairman of Vivendi  Interscope Records and will work full-time at Apple. Dr. Dre, whose real name is Andre Young, said he would continue to produce music but do “as much as it takes” for Apple.

Mr. Iovine, a longtime friend of Apple co-founder Steve Jobs, said the two men’s titles would simply be “Jimmy and Dre.” They will work with both Apple’s electronics and music-streaming divisions, spending as much time at Apple’s Cupertino, Calif., campus as necessary, while serving more broadly to bridge the cultural divide between technology and entertainment industries.

“The ugly truth is that there is such a Berlin Wall between Silicon Valley and L.A.,” Mr. Cook said in an interview. “The two don’t respect each other, don’t understand each other.

“We think these guys have a very rare talent,” Mr. Cook continued. “We love the subscription service that they built—we think it’s the first one that really got it right.”

Apple became one of the world’s largest technology companies by creating huge, new consumer electronics categories with the iPhone and iPad. But the company hasn’t introduced a breakthrough product since Mr. Jobs died in 2011.

At the same time, it has lost some of its hold on the music business. Apple’s iTunes store is the dominant seller of downloaded music. But listeners increasingly are turning to streaming services such as Spotify and Pandora Media Inc.

U.S. sales of single downloads slid 6% to 1.3 billion tracks last year, while album downloads were flat at 118 million. Pandora’s free, ad-supported service has more than 70 million active users. Spotify, which entered the U.S. in 2011, now counts 10 million paying subscribers world-wide.

Apple launched its own free music-streaming service, iTunes Radio, in September 2013. It counts 40 million U.S. users but has yet to make much of a competitive dent. Beats started its $9.99-per-month subscription music-streaming service in January.

The Beats deal also marks the start of Mr. Cook’s push to place his own stamp on Apple, which is still using much of the playbook established by Mr. Jobs. However, Beats pushes Apple in an unfamiliar direction. Not only will it take two celebrities into the company—it will acquire a new stand-alone brand, in a culture where the only brand until now has been Apple.

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