Tomorrow, Apple will likely debut the new iPhone 7, and along with it a host of new headphones from Beats. Beats arrived at Apple, however, through one of the most convoluted and unlikely stories in tech history. It’s a story of a major company that thought it was exploiting a celebrity only to discover, too late, that the celebrity was hustling them instead. And it’s both a fascinating tale and a warning to consumers who might find themselves suddenly being pushed, hard, to buy Beats.
The Founding Of Beats
The official story behind Beats is straightforward: Music impresario Jimmy Iovine and titan of rap Dr. Dre viewed Apple’s cheap earbuds with scorn and decided, if their music was going to get stolen, then at least the thieves should listen to it with the best equipment possible. After consulting with some of the hottest artists of 2006, Iovine and Dre launched Beats. What isn’t mentioned in that tale of “how it all began” is Monster Cable, the company which did the actual engineering of the headphones.
Monster Cable, founded by Noel Lee in the late ’70s, was, at the time, notable for overpriced cables and litigation. If you had “Monster” in your name, whether you were a mini-golf course or a thrift shop, a famous energy drink or Disney, Monster would sue. For a time, Monster’s frivolous lawsuits were a running joke in the tech press, but the jokes covered up a darker side of the company.
Simply put, Monster was a machine built on marketing, not quality. The company was just as infamous for claiming a patent on basic technological concepts as it was for goofy trademark suits, and the company’s products were notoriously no better at doing their jobs than coat hangers. In of itself, this isn’t surprising. The way cables work is dictated by physics, not marketing, and there’s little you can do to copper wires that will yield better sound or picture in any meaningful way.
Monster wasn’t selling a bad product, per se, but buying a Monster product meant you were paying a premium for the marketing. At the time, Beats was seen as the next logical step for a company built on hype. Pairing with a celebrity like Dr. Dre, and the contacts Dre could make with them for endorsements and design, would let Monster take the next step in their flashy, hype-heavy marketing style. What Monster didn’t realize, however, is that they needed Dre more than Dre needed them, and that Dre and Iovine had set it up that way by design.
Forgot About Dre
Beats headphones debuted to critical brickbats: Even Iovine acknowledged in a 2012 article that Beats weren’t designed to give you the best possible audio reproduction, but rather to make the music sound more “dramatic.” Usually it did this, critics and audio engineers noted, by cranking the bass.
Regardless, the company grew quickly after its 2008 launch, and in 2010, it got what was arguably the golden ticket: A $309 million buyout from HTC, a Taiwanese consumer electronics company best known for its smartphones and a pioneer in getting Google’s Android on the market. Oddly, unlike most buyouts, Beats remained more or less completely autonomous. Iovine and Dre controlled the company directly and made every conceivable decision.
By 2012, Beats claimed to control 70% of the “$100 and up” headphones market. Monster, however, was unhappy. They’d reportedly not seen much of that splashy buyout, and wanted more visibility and money. The Beats executive suite, in response, simply ended the contract between Beats and Monster. Cutting off their main supplier and engineering firm would seem to be a risky move, but it quickly became clear just how out of their depth Monster had turned out to be. The deal they signed, largely negotiated by the founder’s son, gave Beats the rights to every scrap of material, from the engineering diagrams to the plastic parts. Monster had, it turned out, built an entire business for Beats, not realizing Beats could walk away at any moment with the whole company.
It turned out to be an even more ruthless move than anybody realized, as a few months later, Dre and Iovine bought back control of their company from a struggling HTC for $150 million, a relative pittance compared the actual value of the company. In a few months, HTC would be completely out of the picture and Beats would be a billion-dollar independent business.
Normally, that would be the end of the story: Monster made a power bid, and lost. It happens all the time in the business world. But Monster had lost millions, and it was willing to go to court to get them back.
Monster Vs. Dre
In January 2014, Beats revealed its streaming music service, and enjoyed a rare moment where critics and audiences both agreed it’d achieved something of value. Beats Music was an attention-getting service, helped once again by Dre and Iovine’s deep and extensive music contacts. Less than four months later, Apple announced it would buy Beats for $3.2 billion, and by August, Dre became in his own words, the first billionaire in hip-hop.
Monster’s reaction was perhaps predictable: They sued. Monster, in its suit, claimed that Beats stole proprietary headphone technology, and that if Beats hadn’t unilaterally ended the contract, Monster would almost certainly have gotten a piece of that billion-dollar Apple deal. Apple’s retribution was swift and if anything more brutal than anything Dre put on an album: It revoked Monster’s rights to make accessories for Apple products, taking nearly a quarter of Monster’s product line off the market with the stroke of a pen. Monster remains unable to use any of Apple’s patents or to get Apple certification for any of its products.
And, on August 30, Monster lost its suit against Beats, as the contract they signed appears to be ironclad. In fact, when Beats executives almost certainly take the stage tomorrow, they’ll likely have just sent a few emails on a countersuit the company has filed against Monster for attorney’s fees. Apple also appears to be in no hurry to return Monster’s certifications.
There’s only so much pity one can have for Monster Cable. This is a company that tried to sue somebody making salt licks for deer, after all. But in light of the fact that Apple is almost certainly getting rid of the headphone jack, and will be heavily promoting a new line of Beats catering to just this situation, it’s worth remembering the hustle the company was built on. It’s unlikely Beats had any feedback on removing the headphone jack, but if the history of Beats shows us anything, it’s that the company’s heads know an opportunity when they see one.