Cleveland Cavaliers LeBron James and recording artist Dr. Dre
Co-founder of Beats and now an Apple employee Dr. Dre with Cleveland Cavaliers LeBron James who is one of the global sports stars who promote the Beats headphone brand.Reuters

After weeks of speculation, on Wednesday Apple finally confirm it was paying $3bn to buy the Beats headphone and music streaming businesses.

Co-founders Dr. Dre and Jimmy Iovine will join Apple as part of the deal, and the Beats brand will (for now at least) remain as a separate entity to Apple.

But the big question people have is why Apple has spent a record breaking amount of money on a company best known for its in-your-face, colourful, oversized headphones.

Having digested the news, Wall Street analysts had been giving their thoughts on the deal, and the reaction has been mixed to say the least.

Dan Niles, chief investment officer of hedge fund AlphaOne Capital Partners believes investors wanted Apple to innovate on top of iTunes rather than offer an entirely new service:

"Apple is an extremely innovative hardware company that has about 800 million iTunes credit cards. Investors want to see them put a recurring revenue stream on top of that through a service offering. To see this kind of money spent for a company that gets most of its revenue from hardware business is not what we want to see."

Josh Stewart, portfolio manager of the Wasatch World Innovators Fund, echoes my thoughts here that the headphone business might bring in a few dollars, but not much else - which he doesn't believe the deal will put Apple at the top of the streaming table:

"The headphones are a nice little tuck-in product for Apple and Beats is clearly the top brand in the space. But the niche is pretty tiny when all is said and done and doesn't move the needle for a behemoth like Apple. Streaming music is a way more interesting space to dominate compared to big ass headphones but buying Beats isn't going to get Apple there."

Katy Huberty from Morgan Stanley on the other hand believes this deal could be a "home run" for Apple if it can leverage Beats' technology:

"Subscription music service could make the deal a home run, with every 1% penetration of Apple's 800M account base equating to $960M of revenue. Apple believes Beats offers the right strategy for streaming music as it leverages both algorithms and 200 human curators to create playlists, which differentiates it from competitors."

Sameet Sinha, analyst at B. Riley & Co says the deal is perplexing but does show the importance of getting music right for companies like Apple:

"It's tough for me to figure out what Apple gets out of this. One thing is clear, they bought this for music and that tells us how difficult it is to scale a streaming music business. Google is having trouble, Microsoft killed Zune. But music is such a great consumer engagement tool that it is difficult to ignore."

Trip Chowdhry from Global Equities says this is Apple's smartest move in the last three years:

"Currently, Beats Music Streaming Service only has 250K subscribers but with Apple's power in distribution (iOS devices and App Store), subscription to Beats Music Streaming Service can easily grow to 20 million subscribers within the next 12 to 18 months."

Gene Munster, an Apple analyst from Piper Jaffray renowned for his constant belief that an Apple television set is just around the corner, believes the Beats deal will pave the way for this mythical product to become a reality:

"We believe that if successful, adding Iovine and Dr. Dre could help propel Apple into the next level in its content offering, particularly in video, which could pave the way for new products including a television. Finally, given that Beats is the largest acquisition of Apple's history, we believe it could open the door to other larger acquisitions, potentially around Internet services outside of content."

Patrick Becker Jr., portfolio manager at Becker Capital Management, makes the point that just 10 months prior to the Apple deal, Beats was valued at just a third of its $3bn price tag:

"We never like to see a company buy something for $3 billion when a few months ago it was worth about $1 billion [based on the valuation when private investors bought a piece of the company in September]. We wonder whether this is an appropriate use of shareholder cash."