via Nah Right | by eskay on Friday, May 9th, 2014

When the news broke yesterday that Apple was rumored to be in negotiations to purchase the Dr. Dre and Jimmy Iovine founded Beats Electronics, the big headline was the $3.2 billion price tag. While Beats is certainly an enormously valuable company, that’s an awful lot of money and it would be the priciest acquisition of a company by Apple in the company’s history.

While the Hip-Hop world is largely focused on the prospect of Dre becoming Rap’s first billionaire, Wall Street and Silicon Valley seem to be somewhat confused as to why Apple would be willing to sink so much capital into a business that they don’t really need. Apple is one of the most profitable companies in the world and they currently control the biggest digital music marketplace on the planet in iTunes.

So what does an acquisition of Beats give them that they don’t already have? Beats headphones are hugely popular, but they are also widely regarded as woefully overpriced and middle of the road as far as sound quality. They just launched the Beats streaming music service, but it’s largely unproven at this point and the subscriber base is believed to be well under 1 million users.

Here is Gene Munster of asset management firm Piper Jaffray on the proposed merger, via Mashable:

“We are struggling to see the rationale behind this move,” Munster writes in his investor note. “Beats would of course bring a world class brand in music to Apple, but Apple already has a world class brand and has never acquired a brand for a brand’s sake.”

Information Week writer Eric Zeman points out that HTC shelled out 350 million for half of Beats a couple of years back and that didn’t exactly work out well for them:

HTC added Beats’ sound processing technology to its handsets, and sold some smartphones with Beats headphones in the box. That story didn’t end well, however. HTC was eventually forced to sell back its share of the company to Iovine. Given HTC’s long slide towards oblivion, it’s fairly obvious that adding Beats’ brand to its own didn’t help HTC sell any phones.

He goes on to note that if the Beats streaming service is what Apple is really after, they could end up having to renegotiate all of their licensing deals with the major labels as a result of such an acquisition. Then there is the matter of Beats $1 billion dollar vaulation. Many analysts just don’t believe the company is worth that much.

All of this confusion and uncertaintly has already spooked Wall Street: Apple’s stock price was down 1.2 percent today.