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Apple gets back to music roots with Beats buy

Apple is getting back to its musical roots. Dropping $3 billion on headphones and song-streaming companies Beats Music and Beats Electronics - and hiring famed co-founders Jimmy Iovine and Dr Dre - may reinvigorate the tunes franchise that launched the iPod maker to further stardom more than a decade ago. The deal suggests subscription music services are the wave of the future, while also boosting a potential "smart home" push by Apple.

Word of the transaction has been circulating since early May, when Dr Dre appeared in an online video proclaiming himself hip-hop's first billionaire. The timing of the formal announcement suggests Apple was eager to deliver the news before its annual Worldwide Developer Conference, which kicks off next week in San Francisco.

The conference will mark a year since the $540-billion company unveiled iTunes Radio, a streaming feature designed to rival fast-growing subscription services like Pandora and Spotify, which have been eating into digital-song downloads from Apple's iTunes store. Global streaming revenue has tripled in the last three years and accounted for $1.1 billion of $5.9 billion in 2013 digital-music sales worldwide, according to sector group IFPI. Apple doesn't break out financial figures for its music business, but iTunes accounts for about a tenth of the company's $170 billion in annual revenue. Industry bible Billboard reported in April that the new radio feature hadn't gained much traction since launching last September.

Bringing Beats' streaming service into the fold gives Apple more ways to satisfy shifting consumer tastes. Chief Executive Tim Cook will have a powerful ally in Iovine, a legendary record producer best known for scouting new talent at Interscope Records but also keen to monetise music.

More, Beats may help Apple expand its presence in the world's living rooms with software linking stereo systems and other household gadgets. The press release announcing the deal hailed Beats for introducing "an entirely new generation to premium sound entertainment," suggesting the company's appeal extends beyond casual listeners plugging into their iPhones.

Before the iPhone and the iPad came along, Apple's growth was fuelled by the iPod and the iTunes store. Beats music streamed over Apple hardware could be the soundtrack for the company's next surge.