Business / #ForbesBusiness



March 13, 2018,   9:38 AM

Dr. Dre's $3 Billion Monster: The Secret History Of Beats



Zack Greenburg

FULL BIO

Noel Lee is a man who knows how to make an entrance. Accompanied by an entourage of a half-dozen or so, he rolls into the sky lobby dining room of the Marriott Marquis in Times Square on a gold Segway accented with flames and then settles into a banquette beneath a towering waterfall in the center of the room.

Lee sports a navy blazer and a black T-shirt bearing the logo of his company, Monster Cable, which he founded in 1979 after working as both a professional drummer and a laser-fusion design engineer for a nuclear weapons research outfit. There, according to Lee, he was exposed to toxic doses of radiation that led to the development of a nerve disorder that prevents him from walking—hence the Segway, which he prefers to a wheelchair. The greatest breakthrough of his career came when, frustrated that most stereo systems were wired with the same cables used for household lamps, he designed a high-performance cable that enabled crisper, stronger sound.

Monster still peddles these trademark cables along with speakers and headphones. The company does not disclose its financial performance, but Lee says he expects annual revenue to top $1 billion within the next five years. Most recently, he’s teamed up to create a range of products, including Monster DNA with Swizz Beatz, ROC headphones and speakers (no relation to Jay-Z’s Roc Nation) with soccer star Cristiano Ronaldo, and, most famously, Beats by Dr. Dre. These experiences have taught Lee lessons he never could have learned in engineering school.

“What is popular in hip-hop is popular for every white kid in suburbia and every Korean kid doing a rap ... and all corners of the world,” he says. “It affects the vernacular of how you speak, so the word ‘motherf***er’ means ‘good,’ or it could be bad. That’s what I learned.”

Lee is just getting started.

“Guys like Dre and Jay, they’ve extended beyond their time ... Diddy, too, but not in the musical sense,” he says. “Let’s take Dre ... How does somebody who doesn’t put out music become the [third] richest hip-hop artist? Well, guess what? Noel Lee put that in the driver’s seat for him.”

Dr. Dre and Jimmy Iovine see things a little differently from Lee, as I learned the afternoon when I first met them in 2011. A small group of reporters gathered at an airy loft in midtown Manhattan to cover the launch of Beats’ latest offering, and Iovine gave some opening remarks. With Dre at his side, he explained the genesis of Beats: he and Dre were walking along the Pacific Ocean one day in 2006 when the latter said he wanted to start a shoe line; he even had an offer on the table from a major brand.

“F*** sneakers,” said Iovine. “Let’s sell speakers!”

It’s a great Hollywood line from a great Hollywood story. But as is often the case with such tales, there’s quite a bit more to it—namely, the extensive involvement of Lee. His son, Kevin, who initially turned him on to hip-hop (and later went on to found his own Sol Republic headphone line), was the one who suggested sitting down with his future Beats partners. “Dad, we’ve got to hook up with Jimmy and Dre,” Kevin said. Lee’s response: “Jimmy who? What does he do? And Dre—isn’t he done?” But Kevin prevailed and helped set up a meeting. According to Lee, Iovine was indeed convinced at first that speakers were the way to go.

“Jimmy,” said Lee. “Nobody buys speakers anymore.”

“What do you mean, ‘Nobody buys speakers’?”

“Big speakers—you can’t take it with you. Everything is portable,” Lee replied. “Kids don’t listen to speakers. You got to do headphones.”

Iovine quickly came around and Dre became the face of the product (through various spokespeople, the former did not respond to requests for comment and the latter declined to be interviewed for 3 KINGS). Lee agreed to have his company design, engineer, manufacture, and distribute the headphones; he’d pay a royalty to Iovine, Dre, and Interscope, who would collectively provide marketing and own the brand. Iovine and Dre held the lion’s share of equity, with Interscope parent Universal possessing a large chunk as well. Lee eventually negotiated a 5 percent stake in Beats. Smaller pieces went to artist Will.i.am and NBA star LeBron James, both of whom would go on to play a key role in Beats’ development.

Of course, the entertainer who contributed the most to the project was the one who gave it his name. Dre actually came up with the Beats by Dr. Dre moniker, according to Lee and others close to the company. He also defined the company’s guiding principle, a pure product of his passion for “perfecting the beat,” as he once rapped. “Apple was selling $400 iPods with $1 earbuds,” Iovine later recalled. “Dre told me, ‘Man, it’s one thing that people steal my music. It’s another thing to destroy the feeling of what I’ve worked on.’”

Lee developed nearly one hundred prototypes before passing a dozen or so to Dre and Iovine for their input. Dre used 50 Cent’s “In da Club” to test different iterations, eventually settling on a bass-heavy version that made Beats the first headphones truly designed for hip-hop. He and Iovine envisioned the “Beats curve,” a thumpy sound profile that would extend across all the products they’d build together.

“It was the first time anybody had heard that bass—Sennheiser didn’t do it, Bose didn’t do it, Sony didn’t do it,” says Lee. “They were still doing studio or orchestral stuff, but they weren’t doing hip-hop. ... The kids, when they listen to music, they want to hear it like they hear it in the club.”

Dre tested out other genres on the headphones, too, listening to everything from Sade to Kraftwerk to make sure that both soul and electronic music sounded right. Yet Lee worried that they’d turned up the bass too far (many audio purists would later agree with that assessment) and sought the counsel of Will.i.am. “Will, I’m not quite happy with the bass,” Lee remembers saying. The artist’s response: “Don’t touch it. You’ve got magic.”

Getting retailers to sign on wasn’t quite so easy. Beats debuted in the middle of the great recession — not exactly the best time to be selling $300 headphones. Dealers didn’t believe that an aging rap star who hadn’t released a solo album in a decade would be enough to move the needle. So Lee went to work convincing Brian Dunn, then the chief executive of Best Buy, that Beats would be not just the next big product but the next big category.

Dunn was an unlikely ally. He started out at Best Buy in 1985, selling televisions in Minnesota to make some money over the holidays, but when VCR technology hit, he found himself in the middle of a consumer electronics industry revolution and stayed on with the retailer. He worked his way up the ladder, running a store, then a district, and then a region; he eventually ascended to the rank of COO and took over as Best Buy’s chief executive in 2009.

By that point, Dunn had heard of both Lee and Iovine, and when the former reached out to discuss Beats, he listened eagerly. Dunn remembers going to Lee’s Bay Area office, replete with curtains and couches reminiscent of a Moroccan casbah, and wrapping a Beats prototype around his ears. It took one session to hook Dunn. Shortly thereafter, Lee brought him into a meeting with Dre and Iovine. Dunn had been involved in his share of celebrity meet and greets by this point. But as Iovine articulated his vision for marketing the headphones while Dre obsessed over sound and fashion, Dunn realized that he’d stumbled upon something different.

“Dre talked about what it was going to mean, how the industry would get behind it,” Dunn recalls. “Talked about, ‘People pay a lot of money for Nikes; they’re going to pay money for great headphones that have a great sound, that have some cachet to them.’”

Best Buy became the first big retailer to stock Beats, but before the headphones could really take off, sales associates had to learn just what they were selling. Lee and his team went in to explain that they needed to know their competition for consumer dollars—and, as Dre had advised Dunn, it wasn’t Sennheiser or Bose.

“Do I buy the Beats or the Air Jordans?” says Dunn. “That’s the consideration set.”

Dr. Dre's $3 Billion Monster: The Secret History Of Beats

Zack Greenburg

FULL BIO

shutterstock 282133619 1635x1185
Noel Lee is a man who knows how to make an entrance. Accompanied by an entourage of a half-dozen or so, he rolls into the sky lobby dining room of the Marriott Marquis in Times Square on a gold Segway accented with flames and then settles into a banquette beneath a towering waterfall in the center of the room.

Lee sports a navy blazer and a black T-shirt bearing the logo of his company, Monster Cable, which he founded in 1979 after working as both a professional drummer and a laser-fusion design engineer for a nuclear weapons research outfit. There, according to Lee, he was exposed to toxic doses of radiation that led to the development of a nerve disorder that prevents him from walking—hence the Segway, which he prefers to a wheelchair. The greatest breakthrough of his career came when, frustrated that most stereo systems were wired with the same cables used for household lamps, he designed a high-performance cable that enabled crisper, stronger sound.

Monster still peddles these trademark cables along with speakers and headphones. The company does not disclose its financial performance, but Lee says he expects annual revenue to top $1 billion within the next five years. Most recently, he’s teamed up to create a range of products, including Monster DNA with Swizz Beatz, ROC headphones and speakers (no relation to Jay-Z’s Roc Nation) with soccer star Cristiano Ronaldo, and, most famously, Beats by Dr. Dre. These experiences have taught Lee lessons he never could have learned in engineering school.

“What is popular in hip-hop is popular for every white kid in suburbia and every Korean kid doing a rap ... and all corners of the world,” he says. “It affects the vernacular of how you speak, so the word ‘motherf***er’ means ‘good,’ or it could be bad. That’s what I learned.”

Lee is just getting started.

“Guys like Dre and Jay, they’ve extended beyond their time ... Diddy, too, but not in the musical sense,” he says. “Let’s take Dre ... How does somebody who doesn’t put out music become the [third] richest hip-hop artist? Well, guess what? Noel Lee put that in the driver’s seat for him.”

Dr. Dre and Jimmy Iovine see things a little differently from Lee, as I learned the afternoon when I first met them in 2011. A small group of reporters gathered at an airy loft in midtown Manhattan to cover the launch of Beats’ latest offering, and Iovine gave some opening remarks. With Dre at his side, he explained the genesis of Beats: he and Dre were walking along the Pacific Ocean one day in 2006 when the latter said he wanted to start a shoe line; he even had an offer on the table from a major brand.

“F*** sneakers,” said Iovine. “Let’s sell speakers!”

It’s a great Hollywood line from a great Hollywood story. But as is often the case with such tales, there’s quite a bit more to it—namely, the extensive involvement of Lee. His son, Kevin, who initially turned him on to hip-hop (and later went on to found his own Sol Republic headphone line), was the one who suggested sitting down with his future Beats partners. “Dad, we’ve got to hook up with Jimmy and Dre,” Kevin said. Lee’s response: “Jimmy who? What does he do? And Dre—isn’t he done?” But Kevin prevailed and helped set up a meeting. According to Lee, Iovine was indeed convinced at first that speakers were the way to go.

“Jimmy,” said Lee. “Nobody buys speakers anymore.”

“What do you mean, ‘Nobody buys speakers’?”

“Big speakers—you can’t take it with you. Everything is portable,” Lee replied. “Kids don’t listen to speakers. You got to do headphones.”

Iovine quickly came around and Dre became the face of the product (through various spokespeople, the former did not respond to requests for comment and the latter declined to be interviewed for 3 KINGS). Lee agreed to have his company design, engineer, manufacture, and distribute the headphones; he’d pay a royalty to Iovine, Dre, and Interscope, who would collectively provide marketing and own the brand. Iovine and Dre held the lion’s share of equity, with Interscope parent Universal possessing a large chunk as well. Lee eventually negotiated a 5 percent stake in Beats. Smaller pieces went to artist Will.i.am and NBA star LeBron James, both of whom would go on to play a key role in Beats’ development.

Of course, the entertainer who contributed the most to the project was the one who gave it his name. Dre actually came up with the Beats by Dr. Dre moniker, according to Lee and others close to the company. He also defined the company’s guiding principle, a pure product of his passion for “perfecting the beat,” as he once rapped. “Apple was selling $400 iPods with $1 earbuds,” Iovine later recalled. “Dre told me, ‘Man, it’s one thing that people steal my music. It’s another thing to destroy the feeling of what I’ve worked on.’”

Lee developed nearly one hundred prototypes before passing a dozen or so to Dre and Iovine for their input. Dre used 50 Cent’s “In da Club” to test different iterations, eventually settling on a bass-heavy version that made Beats the first headphones truly designed for hip-hop. He and Iovine envisioned the “Beats curve,” a thumpy sound profile that would extend across all the products they’d build together.

“It was the first time anybody had heard that bass—Sennheiser didn’t do it, Bose didn’t do it, Sony didn’t do it,” says Lee. “They were still doing studio or orchestral stuff, but they weren’t doing hip-hop. ... The kids, when they listen to music, they want to hear it like they hear it in the club.”

Dre tested out other genres on the headphones, too, listening to everything from Sade to Kraftwerk to make sure that both soul and electronic music sounded right. Yet Lee worried that they’d turned up the bass too far (many audio purists would later agree with that assessment) and sought the counsel of Will.i.am. “Will, I’m not quite happy with the bass,” Lee remembers saying. The artist’s response: “Don’t touch it. You’ve got magic.”

Getting retailers to sign on wasn’t quite so easy. Beats debuted in the middle of the great recession — not exactly the best time to be selling $300 headphones. Dealers didn’t believe that an aging rap star who hadn’t released a solo album in a decade would be enough to move the needle. So Lee went to work convincing Brian Dunn, then the chief executive of Best Buy, that Beats would be not just the next big product but the next big category.

Dunn was an unlikely ally. He started out at Best Buy in 1985, selling televisions in Minnesota to make some money over the holidays, but when VCR technology hit, he found himself in the middle of a consumer electronics industry revolution and stayed on with the retailer. He worked his way up the ladder, running a store, then a district, and then a region; he eventually ascended to the rank of COO and took over as Best Buy’s chief executive in 2009.

By that point, Dunn had heard of both Lee and Iovine, and when the former reached out to discuss Beats, he listened eagerly. Dunn remembers going to Lee’s Bay Area office, replete with curtains and couches reminiscent of a Moroccan casbah, and wrapping a Beats prototype around his ears. It took one session to hook Dunn. Shortly thereafter, Lee brought him into a meeting with Dre and Iovine. Dunn had been involved in his share of celebrity meet and greets by this point. But as Iovine articulated his vision for marketing the headphones while Dre obsessed over sound and fashion, Dunn realized that he’d stumbled upon something different.

“Dre talked about what it was going to mean, how the industry would get behind it,” Dunn recalls. “Talked about, ‘People pay a lot of money for Nikes; they’re going to pay money for great headphones that have a great sound, that have some cachet to them.’”

Best Buy became the first big retailer to stock Beats, but before the headphones could really take off, sales associates had to learn just what they were selling. Lee and his team went in to explain that they needed to know their competition for consumer dollars—and, as Dre had advised Dunn, it wasn’t Sennheiser or Bose.

“Do I buy the Beats or the Air Jordans?” says Dunn. “That’s the consideration set.”



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