Report: Apple on verge of buying Beats for $3.2B

SAN FRANCISCO — Apple is orchestrating a $3.2 billion acquisition of Beats Electronics, the headphone maker and music streaming distributor founded by hip-hop star Dr. Dre and record producer Jimmy Iovine, according to a published report.

Citing people familiar with the negotiations, The Financial Times says Apple could announce the deal as early as next week. In its report posted online late Thursday, the newspaper warned the talks could still collapse if the two sides can't agree on some final details.

Both Apple Inc. and Beats Electronics declined to comment to The Associated Press.

The potential acquisition would add Beats Electronics' popular line of headphones and music streaming service to an Apple line-up that already includes digital music players and the iTunes store, the world's top music retailer.

If the deal is completed, it would be by far the largest purchase in Apple Inc.'s 38-year history.

The Cupertino company has traditionally seen little need to buy technology from other companies, reflecting Apple's confidence in its ability to turn its own ideas into revolutionary products such as the Mac computer, the iPod, the iPhone and the iPad.

But Apple hasn't released a breakthrough product since its former CEO and chief visionary, Steve Jobs, died in October 2011. The innovative void has increased the pressure on Jobs' hand-picked successor, Tim Cook, to prove he is capable of sustaining the success and growth that turned Apple into the world's most valuable company and a beloved brand.

Cook has shown a willingness to spend more of Apple's money than Job ever did. Among other things, Cook began paying Apple stockholders a quarterly dividend and has progressively committed more money to buying back the company's shares.

Apple's pursuit of Beats Electronics is the latest indication that the company is having trouble generating growth on its own. Apple already sells Beats Electronics gear in its stores, giving the company insights into how much the trendy headphones and other audio equipment appeal to its customers.

The negotiations also are taking place as the music market increasingly tilts toward streaming and away from the downloads that once drove the success of Apple's digital music store, iTunes.

U.S. revenue from downloads — which iTunes dominates — dropped 1 percent to $2.8 billion in 2013, while streaming music revenue from the likes of Pandora and Spotify soared 39 percent to $1.4 billion, according to the Recording Industry Association of America.

While downloads still command 40 percent of the market, streaming revenue now accounts for 20 percent of total revenue, up from just 3 percent in 2007.

Beats Electronics LLC was founded in Santa Monica, California in 2008 by Dr. Dre and Jimmy Iovine. Its headphones were manufactured by Monster Cable until the two companies parted ways in 2012. The headphones have become a bit of status symbol worn by celebrities as well as audiophiles.

In 2012, Beats bought streaming music service MOG, which it transformed and relaunched as Beats Music earlier this year. The launch was fueled by a landmark partnership with AT&T that allowed up to five family members to pay $15 a month for the service as long as they were AT&T wireless customers. The deal broke the industry mold of charging each person $10 per month.

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AP Business Writer Ryan Nakashima in Los Angeles contributed to this story.

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The Ticker

Keds sues competitor

Lexington sneaker brand Keds, whose shoes sport a signature rectangular blue label on their heels, has filed a federal trademark infringement lawsuit against Vans.

Keds alleges its Cypress, Calif.-based competitor is selling sneakers with a similar rectangular blue design on their heels — in violation of a 2012 settlement agreement that ended similar litigation in 2011. Keds was issued a trademark for the blue label in 1959, but has continuously used it since 1925, according to documents filed in U.S. District Court in Boston yesterday.

Senate OKs domestic workers bill

The state Senate has unanimously passed legislation to create a "bill of rights" for nannies, caregivers and other domestic workers by establishing labor standards and other worker protections.

The bill approved yesterday would define domestic workers as individuals who provide a range of in-home services such as housekeeping, laundering, cooking and providing home companionship.

The bill would also make clear that domestic workers are eligible for government services and benefits such as unemployment insurance, workers compensation and minimum wage protections.
 It would set rules for sleep, meal and rest periods, as well as requiring that female domestic workers receive at least eight weeks maternity leave if they are full-time employees.

38 Studios lawyers object to delay

Defendants in the 38 Studios lawsuit vs. the state of Rhode Island said Gov. Lincoln Chafee's office has delayed the production of documents and want a judge to order them turned over.

Lawyers for the defendants call the documents critical and say they're needed to go forward with depositions. They want Judge Michael Silverstein to order them produced by May 23.

Chafee's office hasn't yet filed a response.

The governor's office was subpoenaed for records in October and has produced thousands of pages so far. 38 Studios, founded by ex-Red Sox pitcher Curt Schilling, went bankrupt after getting a $75 million state-backed loan.

Today

 Commerce Department releases wholesale trade inventories for March.

 Labor Department releases job openings and labor turnover survey for March.

THE SHUFFLE

Commercial real estate services firm Avison Young has added Dan Collins as senior vice president at its Boston office. Greg Tanner is also joining the Hub office as senior associate and Christina Lambertson as administrative coordinator. All three previously worked at NAI Hunneman.

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Health Connector costs surpassing $500M

The total cost to implement Obamacare in Massachusetts surpassed a half-billion dollars yesterday, as the Health Connector board agreed to seek an additional $121 million in federal funds to try to rescue the money-hemorrhaging health exchange.

"This is now Massachusetts' Big Dig I.T. project," said Joshua Archambault, a health care expert at the Pioneer Institute. "The decision was completely irresponsible to taxpayers, with very little uncertainty we're going to get the end result that we want."

The board approved a two-track plan yesterday — invoking an emergency provision to sidestep state procurement laws — to award a no-bid contract to Minnesota-based Optum. The company will, in turn, subcontract with hCentive — which it holds a 24 percent stake in, as the Herald first reported yesterday.

Connector officials insisted the exchange is so broken they had no choice.

"The reality is, this is it," said Sarah Iselin, the state's Obamacare czar. "When we look at what we can reasonably do for the fall, this is it. I wish we had more choices, but we don't. We're making the best of a really lousy situation."

Federal taxpayers will be asked to shell out the cost of pursuing a "dual track" of simultaneously implementing software to build a new state exchange and joining the federal Healthcare.gov as a fallback plan.

Only board member George Gonser Jr. voted no, arguing it could make insurance more expensive.

"We all know there's an incredible impact on the carriers, and ... these costs trickle down to users and subscribers and small businesses," he said.

The health plans this week warned that some Bay Staters may lose their plans this fall as carriers struggle to comply with the state's two-track plan.

The Massachusetts Association of Health Plans sent letters to board members hours before yesterday's meeting urging them to delay action and cautioning that "health reform efforts ... are in serious jeopardy."

Iselin, a Blue Cross/Blue Shield executive, said the Connector is working with the carriers and understands their predicament.

For taxpayers, Obamacare in Massachusetts has been a more-than-half-billion-dollar blunder. It amounts to: $270 million in federal grants to implement the law, an estimated $120 million through the end of the year to keep some Bay Staters on Commonwealth Care plans, $50 million to pay Optum for easing an application backlog and between $100 million and $145 million for the two-track plan.

And that doesn't include the cost of temporary Medicaid insurance for Bay Staters, which will be split between the state and feds.

The state could save some money if it doesn't have to pay CGI, which developed the initial site, but the two sides are in ongoing negotiations about the fate of the system code.

Publicly, state officials — including Gov. Deval Patrick — have blamed the debacle largely on CGI.

But documents obtained by the Herald and interviews with project staffers in February revealed infighting among top Patrick administration officials and an obsession with building "the absolute Rolls-Royce of any health exchange" that helped doom a website plagued with delays since March 2012.

Ironically, officials at the Colorado health exchange, where hCentive was hailed for its work by Iselin yesterday, announced this week it had signed up 129,000 residents for insurance since Oct. 1, attributing the feat to CGI for delivering on a "realistic plan."

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Federal Watchdog: Pipeline safety oversight shoddy

WASHINGTON — The federal agency responsible for making sure states effectively oversee the safety of natural gas and other pipelines is failing to do its job, a government watchdog said in a report released Friday.

The federal effort is so riddled with weaknesses that it's not possible to ensure states are enforcing pipeline safety, the report by the Transportation Department's Office of Inspector General said. The federal Pipeline and Hazardous Materials Safety Administration, or PHMSA, isn't ensuring key state inspectors are properly trained, inspections are being conducted frequently enough and inspections target the most risky pipelines, it said.

The findings come three years after a gas pipeline explosion and fire killed eight people, injured 58 and destroyed much of a subdivision south of San Francisco. Accident investigators cited weak state and federal oversight.

The nation's network of about 2.5 million miles of pipelines moves millions of gallons of hazardous liquids and 55 billion cubic feet of natural gas every day. Eighty-five percent of these pipelines are under state authority. The report doesn't address the safety administration's oversight of interstate pipelines like the proposed Keystone XL oil pipeline

The safety administration is using an outdated formula to calculate the minimum number of inspectors states need, the report said. The formula, developed in the 1990s, doesn't take into account new inspection methods.

More than 20 percent of the nation's total gas distribution pipelines are more than 50 years old or composed of material such as cast iron or bare steel that are more susceptible to failure than newer pipelines made with more resilient materials. However, the safety administration's staffing formula doesn't take into account whether more personnel are needed to inspect these riskier pipelines, the report said.

The agency also hasn't set minimum qualifications for state inspectors who lead inspection teams, the report said. In one state, for example, an inspector with less than one year's experience was allowed to lead inspections, it said.

"Because it has not set minimum qualifications for state inspectors to lead standard inspections, PHMSA cannot be sure that state inspections cover all federal requirements and ensure pipeline operators maintain safety," Assistant Inspector General Jeffrey Guzzetti said in the report.

The safety administration requires states to use 14 risk factors when deciding how to prioritize pipeline inspections. The agency isn't explicit on how the risk factors are supposed to be weighed, the report said.

As a result, four of five states examined by the inspector general's office were simply scheduling inspections based on how long it had been since the previous inspection, ignoring other risk factors, the report said. The safety administration also doesn't tell states how often pipelines must be inspected. Investigators found one state was allowing as long as eight years to lapse between reviews.

"Because of these oversight gaps, PHMSA cannot be sure that states detect and mitigate safety risks," Guzzetti wrote.

The safety administration has six evaluators who annually certify 48 state agencies and conduct in-depth reviews every three years to ensure states are following federal guidelines. PHMSA provides about 80 percent of the funds states spend on pipeline safety, the report said.

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Follow Joan Lowy on Twitter at http://www.twitter.com/AP_Joan_Lowy

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Suffolk Construction to recoup losses from fire

Boston's Suffolk Construction expects to fully recoup an estimated $30 million to $40 million loss from a five-alarm March fire at a residential development it is building in the Mission Bay area of San Francisco.

The San Francisco Fire Department issued a report yesterday deeming the fire accidental. It was unable to rule out that it was ignited by sparks from a welding unit or embers from a grinder that came into contact with wood roofing materials used for the six-story structure, the report states.

The top four floors — set to contain 172 apartments — were wood-framed and completely destroyed, according to Suffolk's Chief Operating Officer Mark DiNapoli.

"We don't know what the damage is because it hasn't been completely assessed yet," he said. "We're still in the process of removing the debris from the fire and evaluating the remaining structure and planning the reconstruction. We expect to be reimbursed for all of our hard-cost construction."

The preliminary loss is estimated at $30 million to $40 million for materials and labor, he said.

The San Francisco Department of Building Inspection said the building had passed all permitted inspections before the fire, the fire department report states.

The damage will set back Suffolk's work by an estimated six to nine months.

A second building, which will house 200 residential units, was unaffected.

San Francisco's BRE Properties Inc., project owner at the time of the fire, has since merged with Essex Property Trust of Palo Alto, Calif.

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Hot Property: Boston’s priciest home hits ceiling

The most expensive listing in Boston, the $13.95 million six-level townhouse at 74 Beacon St., was renovated to reflect the look of a Victorian-era Back Bay townhouse, but one tradition, the basement kitchen, didn't make the cut.

The mansion has just been put back on the market after the kitchen was moved from the basement to the first floor.

"It was a major reason why this property wasn't selling," said Tracy Campion, Boston's top broker in sales volume ($272 million last year), who has been brought on as a co-exclusive listing agent along with Brad Sprogis and John Neale, who originally brought the building to developer Peter Georgantas of Peg Properties & Design.

"Buyers want an open feel with the kitchen, living and dining areas on one floor," said Sprogis. "You're really seeing a move to a less formal style of living even at this level."

The new first-floor kitchen, with white macoubas quartzite counters and island, a La Cornue stove and custom Scandia cabinets, overlooks a private patio.

Transforming the 1828 gray granite townhouse overlooking the Public Garden into a single-family has been a lengthy process. Georgantas bought the property in 2007 when it was four apartments and it took three years to renovate it.

"We wanted it to feel like a historic single-family in Back Bay," said Georgantas, whose wife and business partner, Elizabeth, co-designed the interiors. "But it had to be crisp, clean and bright rather than overbearing, stuffy and Victorian."

A large, bright open living/dining area has quarter-sewn oak floors and custom white woodwork. The grand staircase, modeled after The Breakers in Newport, R.I., connects all 8,450 square feet of living space, plus there's a wood-lined elevator.

The fourth floor is made for entertaining, with a large media room/ballroom that opens onto a rear roof deck with views of Beacon Hill. And there's an oak-lined library, complete with a custom rolling ladder for the bookcases.

The sixth-floor rooftop deck overlooks the Public Garden, with an infinity edge lap pool.

The sumptuous master suite has silk wall coverings, custom dressing rooms and closets and a master bathroom with a clawfoot tub and an enormous glass steam shower.

There are five other bedroom suites and an additional five full and three half bathrooms, plus a private gym and a family room in the basement that opens to a private patio.

The home comes with a deeded garage space at the toney Brimmer Street Garage, along with a parking space behind the house.

After completion in 2010, the home didn't sell, so it was rented for $40,000 to $60,000 a month. But given the superheated luxury market, Georgantas said he now feels optimistic.

"Someone can buy this property that offers a sense of history as well as privacy," he said. "Or they can spend the money on a top-tier condo unit without much character that feels like a hotel."

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Foreclosures soar in March

Massachusetts foreclosure petitions took a sharp year-over-year turn up in March, ending 16 consecutive months of decline in petition filings, according to The Warren Group.

"The increase in percentage terms seems enormous, almost as though the flood gates have been thrown wide open," Timothy M. Warren, CEO of the market tracker, said in a podcast. "However, I see a number of reasons to be cautious about turning up the volume on the alarm quite yet."

In March 2013, only 283 foreclosure petitions were filed, which was 83 percent below the prior March, and much lower than February 2013, Warren said.

"So I'm going to suggest that perhaps March of last year was the real outlier in the data trends, more so than March of 2014," he said. "Nevertheless, 660 petitions filed in March of this year do represent a big increase in the current trend. For example, it is 50 percent higher than February."

Lenders are getting more aggressive with delinquent borrowers, Warren said.

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Ukraine referendum tensions weigh on markets

LONDON — Renewed jitters about Ukraine as pro-Russian militants pressed ahead with plans for an independence referendum weighed on markets Friday.

Ukraine continued to loom large for investors. Insurgents in the country's east are preparing for a weekend referendum on independence, a vote similar to the plebiscite that paved the way for Moscow's annexation of Crimea in March. Preparations have continued despite a call by Russian President Vladimir Putin to put off the vote amid negotiations with the West over Ukraine's future.

In Europe, the FTSE 100 index of leading British shares closed down 0.4 percent at 6,814.57 while Germany's DAX fell 0.3 percent to 9,581.45. The CAC-40 in France ended 0.7 percent lower at 4,477.28.

The main point of interest was the euro, after its sharp turnaround Thursday in the wake of a hint from European Central Bank President Mario Draghi that the bank could ease monetary policy further next month to boost inflationary pressures across the 18-country eurozone. Standing at an annual rate of 0.7 percent, inflation in the eurozone is below the ECB's target of just below 2 percent.

The ECB could, for example, cut interest rates which would make the euro less attractive. That's largely why the euro is down a further 0.6 percent Friday at $1.3756. Before Draghi made his remarks, the euro nearly hit $1.40 for the first time in two-and-a-half years.

"Draghi's interjection has no doubt provided euro bulls with the perfect opportunity to consolidate gains and reflect upon a decent run, though whether it has deprived the euro of a major pillar of support to dissuade them from regrouping, is another matter," said Neil Mellor, senior currency strategist at Bank of New York Mellon.

In the U.S., the Dow Jones industrial average was down 0.1 percent at 16,536 while the broader S&P 500 index, which nearly struck another all-time high on Thursday, fell 0.3 percent to 16,536.

"As earnings season winds down, we are still lacking the vital spark to send this market higher," said Brenda Kelly, chief market strategist at IG.

Earlier in Asia, the mood was mixed after lower than anticipated Chinese inflation figures. Though the drop in the annual rate to 1.8 percent may give Beijing more leeway to stimulate the slowing Chinese economy if needed, it also underlined the extent to which domestic demand has weakened.

Hong Kong's Hang Seng closed up 0.1 percent at 21,862.99 while Japan's Nikkei 225 stock average gained 0.3 percent to 14,199.59. South Korea's Kospi edged up 0.3 percent.

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Netflix raises prices by a $1 for new subscribers

SAN FRANCISCO — Netflix is raising its Internet video prices by $1 per month for new customers and giving its current U.S. subscribers a two-year break from the higher rates.

The changes mean anyone signing up for Netflix's video subscription service beginning Friday will pay $9 per month for in the U.S. The old price of $8 per month will continue until May 2016 for Netflix's existing 36 million U.S. subscribers.

The price increase, Netflix's first in nearly three years, isn't a surprise. The Los Gatos, California-based company disclosed its plans to raise its rates last month without specifying the precise amount.

Netflix Inc. says its needs more money so it can afford to pay for more original programming along the lines of its Emmy award-winning political drama "House of Cards" and critically acclaimed series "Orange Is the New Black." The emphasis on video that can only been seen on Netflix has become a major drawing card for the company as it strives to create the Internet's equivalent of Time Warner Inc.'s HBO cable network.

By delaying the price increase for current subscribers, Netflix hopes to avoid the backlash that it faced in 2011 when it raised its prices by as much as 60 percent.

The company lost about 800,000 customers within a few months in an exodus that alarmed investors, causing Netflix's stock to plunge by more than 80 percent in a year. Netflix eventually lured back subscribers and revived its customer growth, lifting its stock to record highs earlier this year.

Netflix's stock rose $2.65 to $324.31 in early afternoon trading Friday. The shares have fallen by 13 percent so far this year.

Prices for Netflix's rapidly shrinking DVD-by-mail service aren't changing. Those rates range from $5 to $20 per month, depending on how many DVDs are being rented and whether a Blu-ray option is included. Netflix ended March with 6.7 million DVD subscribers, a nearly 50 percent drop from 2 ½ years ago.

New Internet video customers can avoid the higher price if they are willing to settle for a little less clarity and flexibility. Netflix is also introducing a new $8 per month plan that will only show standard-definition video and limit viewership to just one screen.

Netflix normally offers high-definition video and allows subscribers to watch on up to two different screens. That means two people sharing the same subscription can simultaneously watch Netflix videos on different devices with high-speed Internet connections. The company already charges $12 per month for a subscription plan that allows video to be simultaneously streamed on four different screens.

Subscription prices also will be increasing by the equivalent of about $1 month in Netflix's markets outside the U.S. The company ended March with nearly 13 million international customers in more than 40 countries.

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Firm: 38 Studios default would bring 'junk' status

PROVIDENCE, R.I. — An independent analyst hired to study the impact of defaulting on the 38 Studios debt predicts Rhode Island's bond rating would be downgraded to junk status and the business climate would be harmed.

The SJ Advisors report, released Friday, says default would bring increased borrowing costs. The firm says it could also lead to a "contagion effect" that would affect other Rhode Island borrowers and taint the business environment.

The head of the Rhode Island Public Expenditure Council told a House panel Thursday default would cost the state more than the 38 Studios debt. Gov. Lincoln Chafee insists the debt must be honored.

Some lawmakers want the state to default on the remaining $87 million Rhode Island owes from the deal that gave 38 Studios a $75 million state-backed loan.

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