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iTunes head Cue and Beats' Iovine: Apple will put Beats on steroids

Eddy Cue, Apple SVP of Internet software and services, also says Apple in 2014 has the "best product pipeline" he's seen in 25 years.

Apple's iTunes head Eddy Cue and Beats co-founder Jimmy Iovine, chat at the Code Conference. Asa Mathat/Recode

Beats is about to get a big injection of steroids from Apple.

Eddy Cue, Apple's head of iTunes, and Beats co-founder Jimmy Iovine, talked about the reasoning behind Apple's plan to buy Beats and gave hints about what the two companies could do together.

"It's about music," Cue said Wednesday during an appearance at the Recode Code Conference in Rancho Palos Verdes, Calif. "Music is something that is really important to culture. It's important to everyone in the world. Everyone loves music. Apple has been involved in music since Day 1. ... This is about us continuing to invest in music."

He added that Beats had three things that Apple "wanted and loved:" incredible talent, premium headphones, and a well-curated subscription music service. It also sees opportunities in areas such as speakers, Cue said. Apple has a lot of customers, it knows what they listen to, it gives the customers an easy way to pay, and it has great relationships with artists, he said. All of those will help put Beats "on steroids," Cue added.

"At the end of the day, it's not about what Apple is doing today, or what Beats is doing today," Cue said. "It's about what we can do together."

Cue later added that Apple has "the best product pipeline I've seen in 25 years" slated for 2014.

"I believe the products we've got coming are great," he said.

Apple on Wednesday said it plans to buy Beats for $3 billion, giving the electronics giant a popular headphones business and subscription streaming music service. The acquisition brings Beats co-founders Jimmy Iovine and Dr. Dre to Apple's management team, and Apple will continue to use the Beats brand. Beats controls about 60 percent of the $1 billion premium headphones market, according to NPD Group, and it has proved popular with everyone from celebrities to tweens.

News of the deal broke earlier this month. At the time, it was unclear just why Apple would want to make the biggest acquisition in its 38-year history. Beats sells a lot of headphones, but Apple, which already sells its own branded in-ear headphones as part of a line of accessories for the iPhone and iPad , could make similar headphones of its own. As for a curated streaming music service such as the one offered by Beats, that's also something Apple could probably create on its own.

Apple executives on Wednesday defended the move in interviews with reporters and a memo to employees. CEO Tim Cook praised Iovine and Dre and said the subscription service they built is the "first one that really got it right." He also said that Beats gives the company "a head start" on new products for the future.

Iovine, meanwhile, said Beats has been trying to do a deal with Apple for a long time, but Apple moves slowly.

"Who doesn't want their products made by Apple?" Iovine said. "We have a lot of dreams for the subscription service. It's very important to the songwriter, producer...we need to get the model right. We need to put steroids into that."

One thing Iovine won't be doing at Apple is actually making music. Instead, he'll focus on music delivery and curation.

"Right now, people are not being moved by what exists," he said. "People will pay for service. They will pay for an experience."

He added that Spotify and other music services have good offerings, but they don't have the curation angle right. Iovine said the services, which "cost a fortune," are being funded by venture capital money that's "going to end soon."

"If there's not a real business model behind it, it's going to cave," he said. "The model isn't right yet. ... Spotify should have 10 million subscribers in America, not worldwide."

Beats earlier struck an agreement with HTC to boost its funding and grow its business, but the partnership "crashed and burned," Iovine said, because of a "culture clash." Beats also has a partnership to put its technology on HP computers, but Iovine said the deal will end soon. HP told CNET that its agreement to make new devices with Beats last through 2014, and it can continue to sell such products through 2015.

"The contract ends soon, and when it ends, it ends," Iovine said. "We did that because we didn't like the sound of computers. ... Computers are made for talk. Apple is the only computer that had good audio."

Meanwhile, Apple co-founder Steve Wozniak told CNET in an email that the Beats deal could be a smart move for Apple, but he also has some concerns about Beats' popularity being shortlived.

It "sounds good for Apple [to be] getting back to some cool roots," Wozniak said. "I worry about the Beats hardware fad fading, but if I were to buy ordinary headphones, I'd probably choose Beats."

Cue disputed the notion that Apple is "buying cool" by acquiring Beats.

These happy gentlemen just signed a $3 billion deal. From left: Beats co-founder Jimmy Iovine, Apple CEO Tim Cook, Beats co-founder Dr. Dre, and Apple SVP Eddy Cue. Apple

"I don't think you buy cool," he said. "You make the best products in the world and you make them cool."

Cue also said talk that music sales "are going away or going down is way overrated." He noted that Apple just sold 35 billion songs.

"The rate is leveling off, that's true," Cue said. "We think music subscriptions is the third thing we bring to the table, but we wanted to do it the right way. We have a lot of ideas."

He and Iovine also talked about the sometimes tense relationship between Silicon Valley and Hollywood but stressed that Apple and Beats get each other.

"In the entertainment business, everyone is desperately insecure," Iovine said. "In Silicon Valley, everyone is overconfident."

Cue noted that there's a "lack of respect on the two sides." Silicon Valley thinks making movies is easy, while Hollywood takes CDs, DVDs, and other technological advancements for granted.

"I think one of the advantages that we had with our relationship with Disney and Pixar ... that boundary between technology and art [has disappeared]," Cue said. "We have great respect for what Hollywood does."

He added that Apple continues to improve its TV offering, but it's a tougher market to crack.

"TV is a hard problem to solve," he said. "One of the problems you have with a TV is you have a disparate system with a bunch of providers. There's no standards. There's a lot of rights issues."

Updated constantly until 9:30 p.m. PT with additional comments.