One of the nice things about being Jimmy Iovine is that when you call Dr. Dre, the world's most famous hip-hop producer, he actually picks up the phone. That's likely because the two have had a habit over the years of making millions on various collaborations. Iovine--who first earned a name for himself behind the mixing console, recording rock classics such as Bruce Springsteen's Born to Run and U2's Rattle and Hum--signed a deal with Dre's Aftermath Entertainment in 1996, after Dre had established himself as a hitmaker with the seminal rap squad N.W.A. Since then, Dre has produced Eminem, 50 Cent, Eve and Gwen Stefani for Iovine's company, Interscope Records. And for more than five years, the two have been partners in Beats by Dre, one of the hottest brands in consumer electronics. Beats has succeeded in transforming headphones from a ubiquitous freebie thrown in the box with your phone or music player into a must-have fashion accessory--one consumers are willing to pay $300 for.
"The younger generation had no idea what music was supposed to sound like," says Iovine, 60, leaning back into a spacious couch in the living room of his home in Los Angeles' Holmby Hills neighborhood, a block from the Playboy Mansion. "Both of us take great pride in the fact that this company is turning a lot of young people on to quality sound," he continues, a hint of Brooklyn in his voice. "I knew people were going to dig it, but I didn't know it was going to be this big," adds Dre, 48, over speakerphone.
Beats' signature thundering bass, sometimes criticized as overwhelming, is well suited to modern music driven by the bottom end and offers a direct challenge to competitors such as Bose and Sennheiser. Beats' design--bulky, dazzlingly colored--stands out in a crowd. (The next time you're in an airport terminal or crowded subway car, look around. The brightest object in your field of vision is likely to be a set of Beats perched on a teenager's head.)
But to see Beats merely as celebrity-endorsed headphones misses the mark. As with any successful luxury product, Beats isn't just selling functionality or fashion. It's offering access to the ostentatious lifestyles of the pop stars Iovine and Dre have turned into household names.
The formula has won over legions, pushing the Santa Monica, Calif.--based company's annual revenue to more than $1 billion. According to market researcher NPD Group, the privately held Beats controls almost a third of the $1.8 billion U.S. headphone market. Since its founding in 2008, Dre and Iovine have expanded the business to include wireless boom boxes, computer speakers and audio systems in cars.
Now the two are embarking on the riskiest gamble in the company's short history. They are betting that if the Beats image can sell tony headphones, it can also win customers in the record industry's most crowded and tumultuous new sector: streaming music. On Jan. 21, the company will launch Beats Music, a subscription service for phones, tablets and computers. The app will offer access to an unlimited number of songs, as well as an innovative way of creating custom playlists, for about $10 a month.