Apple's Beats buy the result of executive ignorance -- report

Apple's management underestimated the importance of streaming music to consumers until it finally snagged Beats Electronics, which includes the Beats Music streaming service, a new report claims.

Apple's management team has historically focused on getting customers to purchase songs through its iTunes service rather than on feeding them streaming music, leading to a level of "arrogance" that put the company behind the 8-ball, Buzzfeed reported Thursday, citing people who claim to have worked at the company and have knowledge of the behind-the-scenes discussions over music.

According to Buzzfeed's sources, who include both current and past employees on the iTunes and iTunes Radio teams, many of the company's own employees have opted for Pandora and Spotify over Apple's streaming service, iTunes Radio. Those sources also said Apple's management failed to see Spotify or Pandora as threats, causing the company to "panic" and acquire Beats.

"The management in particular were pretty much tone-deaf in what Spotify was and that's why they're panicking now," the source told Buzzfeed. "They didn't understand how Spotify worked, which is why they thought iTunes Radio would be a Spotify killer."

Apple launched iTunes Radio last year as a streaming competitor to Spotify and Pandora. The service allows people to create stations and then hear tracks similar to their stations' songs or artists.

Despite the Buzzfeed sources' claims, iTunes Radio isn't a failure or could eventually hurt Spotify. In March, an Edison Research study found that in the US, iTunes Radio had surpassed Spotify for streaming share, with 8 percent of the market. Spotify could muster only 6 percent share. Apple still had a long way to go to catch Pandora, however, which owned 31 percent of the market.

The growth of iTunes Radio suggests that Apple is doing something right. In addition, Apple's recent acquisition of Beats Electronics, which included the company's popular hardware as well as streaming service Beats Music, may not have been an act of desperation, despite what Buzzfeed's sources say.

Indeed, as CNET's Joan Solsman pointed out last month, Beats Music is off to a good start, making it all the more attractive to Apple. Beats has a major partnership with AT&T that gives it access to that company's massive installed base, Solsman points out. What's more, if Apple can properly integrate Beats Music into iTunes, Beats Music can capitalize on iTunes' more than 800 million global registered users.

CNET has contacted Apple for comment. We will update this story when we have more information.